everyone knows very well apple (NASDAQ:AAPL). His business, one of the most famous brands in the world, sells the most sought-after hardware products that consumers pay high prices to own.
Apple stock has been a great investment for years, rising 817% over the past 10 years. and more recently, up 48% in 2023; Nasdaq Composite.
But before you rush out and buy this FAANG stocks Here are four things you need to know heading into 2024.
1. Importance of iPhone
Although the company sells a variety of hardware products, including the Apple Watch, AirPods, MacBook, and iPad, it still relies heavily on the iPhone. In the last fiscal year (ending September 30), the company generated 52% of its revenue from its flagship smartphones.
From a profitability perspective, this is a good thing. Although the iPhone accounts for only about 20% of global smartphone shipments, its pricing power accounts for about 80% of the industry's operating profits. This helps explain why Apple is such a profitable company.
However, the iPhone is in the mature stage of its lifecycle. New upgrades have fewer innovative features, making it easier for consumers to choose not to update their phones every year and instead choose to keep their existing phones for longer periods of time.
2. Growing service
What makes Apple a truly great company is not just its hardware products, but its entire ecosystem. And a key aspect of this is the growth of the company's services division. This division includes Apple Pay, iCloud, News, Music, TV+, and more.
These days, services are expanding faster than products. In fiscal year 2023, service revenue increased by his 9% and accounted for his 22% of companywide sales. Since much of Apple's revenue comes from services, this segment is performing well and could improve its profitability. gross profit 71%.
Perhaps more importantly, Apple's services foster customer loyalty and stickiness. Consumers have fewer reasons to switch to a competitor's product.
3. Aggressive stock buybacks
We've already mentioned how profitable Apple is. Over the past 10 years, the company's operating margins averaged an impressive 27.9%. This is not something we are used to seeing in the typical consumer electronics business. It shows Apple's strong brand and differentiation.
Additionally, Apple has a large amount of free cash flow (FCF). In the past three fiscal years alone, his total FCF amounted to a whopping $304 billion. Remember, this is the money that remains after the company reinvests in growth opportunities. And it gives Apple financial flexibility that other companies can only dream of.
Management is actively using this FCF to buy back shares. Last year, nearly $78 billion was spent on stock buybacks. And over the past five years, the company's outstanding shares have declined by 21%.
4. High valuation
It's hard to find a reason not to like Apple's business, but there is one important reason investors should hesitate before buying the stock. It's valuation.
As of this writing, the stock price is price versus revenue The ratio is 29.8. This is significantly more expensive than Apple's average of $20.8 over the past 10 years. and it is, S&P500.
With valuations so high, it's hard to be optimistic that Apple will generate market-beating profits going forward. This is especially true given the company's recent maturation and slower growth prospects compared to past years.
Should you invest $1,000 in Apple right now?
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Neil Patel and his clients have no positions in any stocks mentioned. The Motley Fool has a position in and recommends Apple. The Motley Fool has a disclosure policy.
4 things to know before rushing to buy Apple stock in 2024 Originally published by The Motley Fool
