Apple shares have underperformed since the company’s recent earnings report. A few analyst downgrades and a brief period of underperformance is hardly cause for panic, but the combination of slowing growth and a seemingly elevated valuation isn’t ideal.
Apple’s price-earnings ratio is noticeably lower than other mega-cap tech stocks such as Microsoft, Amazon and Nvidia, but that trio can also boast higher growth rates.
Apple revenues are expected to grow just 0.9 per cent this year, and Wall Street estimates suggest only modest growth in coming years. However, the stock’s valuation is well above its three-, five- and 10-year averages. Apple trades on 29 times earnings, almost 50 per cent above its average (20) over the last 10 years.
This doesn’t mean shares must fall. Valuation comparisons can be interpreted to mean that the stock was undervalued in the past, as opposed to overvalued today. Apple may also surprise on the upside, with chief executive Tim Cook promising an AI (artificial intelligence) announcement “later this year”. Nevertheless, there are obvious reasons why Apple is lagging its mega-cap tech rivals this year.
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