Apple (NASDAQ: AAPL) stock is currently trading around $230, but I think it's trading on borrowed time. By the end of the year, I wouldn't be surprised if the stock was below $200, because the fundamentals don't support Apple's current stock price.
There is a lot of pressure on Apple's business, and unless something drastic changes, the stock is due for a correction.
Apple's business needs no introduction. Its devices are in the hands of millions (if not billions) of people, although Apple seems to have hit a peak in its revenue. Since 2022, Apple's revenue hasn't increased any.
Companies need growth to sustain an increasing stock price, and Apple hasn't shown that. We'll find out more about Apple's latest results when it reports on Halloween night (a scary time to report earnings!), but early indications aren't great.
Apple released the iPhone 16 during the quarter, and multiple reports have indicated that sales of the iPhone 16 aren't what the company expected. Since iPhone sales make up about half of Apple's total revenue, this segment must do well for the rest of the business to thrive. This reported weakness has caused Wall Street analysts to tweak their expectations for the upcoming quarter, as the consensus earnings per share (EPS) projection has declined from $1.60 30 days ago to $1.55 now.
Falling projections heading into earnings are never a good sign. If the rest of Apple's results aren't great, don't be surprised if the stock takes a hit, as it's trading at an incredibly pricey valuation.
Apple's stock fetches a far greater premium than most investors realize. At 35 times trailing earnings and 31 times forward earnings, Apple's stock is very expensive.
While other stocks are trading at more expensive valuations, those companies are posting impressive growth numbers.
Over the long haul, stock price movements are heavily correlated to earnings growth. So, when a benchmark index like the S&P 500 (SNPINDEX: ^GSPC) averages a 10% return per year, that's the level of earnings growth a company typically needs to beat the market consistently, if the two securities trade at the same valuation.
Last quarter, Apple's earnings per share (EPS) grew at a 10% pace. In fourth-quarter fiscal year 2024 (ending around Sept. 30), analysts expect 14% growth. Both figures are either right at the S&P 500's long-term average or slightly higher. However, with the S&P 500 trading at 24.7 times trailing earnings and 23.8 times forward earnings, Apple holds a 43% and 32% premium to those respective valuation metrics.