Should You Buy Apple Stock Now or Wait for a Dip?
Key Points
Apple's stock recently hit new highs and is trading at around 40 times its trailing earnings.
High expectations may be hard to meet when it reports earnings next month.
The current economic conditions are not ideal for demand to be strong for its high-priced phones.
Apple (NASDAQ:AAPL) may not be leading in artificial intelligence (AI) development, but the tech stock is one of the leading stocks on U.S. markets right now. Year to date, it has risen by around 26% in value and has a market cap of $5 trillion, trailing only Nvidia, which has a valuation of around $5.3 trillion.
What’s remarkable is that Apple has done this, despite being a bit of a laggard in AI; consumers and analysts alike have been largely underwhelmed with its AI efforts thus far, and the slow rollout of advanced features for its iPhones. Yet, by taking a slow-and-steady approach, Apple has continued to win over investors.
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But with its valuation being as high as it is and the stock trading at close to 40 times its trailing earnings, should investors wait for a dip in price before buying Apple's stock, or could it still soar higher?
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A big test is looming for Apple
The challenge with investing in a stock as highly valued as Apple is that expectations will be inflated. When the company reports its earnings next month, there will be a focus not only on its overall revenue and profit growth but also on its guidance for what lies ahead.
Of key importance will be indications of how strong demand is for the iPhone 18 and how well its foldable iPhone Duo is doing, which has a starting price of $1,999. It'll be an important test that will show investors just how resilient its customer base is or isn't to inflation and the current economic conditions.
If it fails the test and demand doesn't prove to be robust, the highly priced stock could be due for a correction. The upcoming earnings report will also be the first one with new CEO John Ternus at the helm. Ternus took over from longtime CEO Tim Cook at the start of September.
I'd hold off on buying Apple's stock
Apple has an excellent business, but the stock itself is simply too pricey to buy right now. Paying 40 times earnings for a tech stock that's grown its revenue by less than 6% over the past three fiscal years just doesn't seem like a great idea.
Although Apple's growth rate has picked up this year, its inflated valuation makes it a bit of a riskier buy, as it could be vulnerable to a correction, particularly if its results don't meet the high expectations that analysts will likely have for the business.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.