Watching companies set individual records on revenue or earnings is always a great sign for investors, as it shows that the company is reaching new heights. However, there are also some metrics that you don't want to see companies setting new records in, such as debt or valuation.
An apple (NASDAQ: AAPL) has recently set a new record, but not for a good reason. I believe this is a huge sign for investors to pay attention to in 2025 as it could lead to a retreat for the stock price.
Apple has long been among the top consumer brands. Its iPhones are in the hands of the majority of smartphone users in the US, who also wear Apple watches and AirPods, and use Apple computers. Although Apple has been dominating for some time, it appears to have peaked.
Apple has not released meaningful new products or technology for some time, which has caused the company to become fairly stagnant. iPhone sales, the company's largest segment by revenue, have not grown rapidly in some time.
|
A year |
Revenue Q4 iPhone |
YOY Growth |
|---|---|---|
|
2024 |
$46.2 billion |
5.5% |
|
2023 |
$43.8 billion |
2.8% |
|
2022 |
$42.6 billion |
9.5% |
Data source: Apple. Note: Q4 ends around 30 September but it is different every year.
Mid single digit percentage revenue growth is a key indicator that a company has reached maturity. This growth rate is unlikely to change unless Apple launches a new product or hits its prices. However, the company is trading as if its revenue is growing at a mid-20% pace or more.
Apple stock has now reached a decade-high valuation level even though it hasn't shown much growth. Although Apple stock traded for a higher price-to-earnings (P/E) ratio. than during its lifetime as a public company, this is the first time it has traded this high in its modern state (when iPhone sales are a significant portion of its revenue).
I've also overlaid Apple's revenue growth rate to show that Apple was valued at around 40 times trailing earnings last time, its revenue was growing at more than 50% year over year. With Apple's revenue now growing at a much slower rate, this valuation seems to be going against the grain because it won't be able to grow its way into a more reasonable price tag.
As a result, Apple will likely return to a more historical normal pricing level through a price decline.
With Apple growing at a slower pace than the wider market, there is no reason why Apple deserves a premium over the S&P 500 (SNPINDEX: ^GSPC). With the S&P 500 trading at a trailing P/E ratio of 25.2 and a forward P/E of 21.9, I would expect Apple stock to trade around those levels if it continues to put up average growth.