Apple stock has been one of the most profitable in modern history. According to the company, there are now more than 1 billion iPhones in active use around the world.
Given Apple’s brand awareness and innovative products, it’s no surprise that many people are interested in adding AAPL to their portfolio.
But does Apple stock still make sense as an investment? It all depends on your financial goals, current investments and risk tolerance.
Here are five things you need to consider before buying Apple stock:
1. History of Apple shares
Apple held an IPO (initial public offering) on December 12, 1980 at a price of $22 per share under the ticker AAPL. There have been five stock splits since then, so when compared to the current market price, the split-adjusted IPO price was effectively 10 cents.
Here is the story of the Apple stock split:
- 2-to-1, June 16, 1987
- 2-to-1 June 21, 2000
- 2-to-1 February 28, 2005
- 7-to-1 based on June 9, 2014
- 4-to-1 August 28, 2020
If you were lucky enough to invest $1,000 in an IPO, you would double your investment many times over. Your initial $1,000 will now be worth over $1.7 million as of the date this article was published, equating to an average annual return of nearly 20%.
By any standard, Apple’s growth as a company has been phenomenal. It was the first company to reach a $1 trillion market cap in 2018 and crossed the $3 trillion mark in 2021.
The company is part of the so-called FAANG shares (Facebook, Apple, Amazon, Netflix and Google). These stocks are known for their significant growth in recent years and dominance in their respective areas.
2. Learn the fundamentals of Apple stock
If you want to invest in individual stocks, one of the most important steps is to evaluate the company’s fundamentals, and Apple is no exception.
Good investors take the time to research before buying a stock to understand its current value and future prospects. Some of the things you’ll want to explore include:
- income
- Net profit
- cash flow
- Competitive Analysis
- company management
- general industry trends
A great place to start your research is Apple’s Investor Relations website. There, you can find all of their SEC filings, including quarterly and annual filings. These reports include business overview, financial reports, market risk information and more.
You can also use your broker’s research tools or free online websites to analyze key financial metrics such as return on equity, price-to-earnings ratio and dividend yield.
Before investing in a company, Warren Buffett will read all of its annual reports, from the very beginning, to understand how the business works. While you may not be able to research stocks like Buffett, it’s a good idea to take some time to learn as much as you can about Apple before buying stocks.
3. Is Apple in line with your investment goals?
Even the greatest company in the world won’t be a perfect fit for everyone’s portfolio. Before buying Apple stock or any other stock, make sure you have clear investment goals and how the stock will fit into it.
For example, if you have a short investment horizon, investing in individual stocks may not be the best option. In the long term, stocks have proven to be reliable, but in the short term, there is much more volatility.
You also need to consider your asset allocation strategy. How much of your total portfolio would you like to invest in stocks versus bonds or other investments such as real estate? And how much of that amount do you want to invest in one company? While picking individual stocks can lead to higher-than-market returns, it can just as easily go the other way.
The less diversified your portfolio is, the more risky it can be. Before buying Apple stock, consider how it will affect your overall investment mix. Would you over-invest in tech stocks? Or would it be a great addition to balance your portfolio?
4. How much can you afford to invest in Apple?
Once you understand your investment goals and decide that Apple is right for your portfolio, the next question you need to ask is how much to invest.
You have to consider how much money you have to invest and how much of a role you want Apple to play in your portfolio. As a general rule, stocks should be viewed as long-term investments. You should only invest money in the stock market that you won’t need in the short term. This is especially true for buying shares in individual companies such as Apple. A bad quarterly report, negative analyst opinion or even general market sentiment can easily move the price by 5-10% or more in a matter of days.
Then consider how you are meeting your other financial goals. For example, if you don’t already have an emergency fund, you might prefer it over long-term stock investments. Most experts consider spending three to six months a good goal. Your emergency fund should be easily available in the event of job loss or other emergencies, and individual stocks tend to be too volatile in the short term to be relied upon in emergencies. If you track your expenses and know the approximate percentages of your family budget, it is relatively easy to calculate how big your reserve fund should be.
If you have a fully stocked emergency fund and have accounted for your household budget, the last piece of the puzzle is determining your buying strategy. If you have a significant amount of money to invest, it may make sense to follow a dollar cost averaging strategy. With this strategy, you will be investing a certain amount in Apple, say $1,000 per month for months or even years. By investing over a longer period of time, you can reduce the risk of putting all your money in the stock market when prices are high. As Apple shares rise or fall, you will be able to buy them at different prices.
5. Pros and cons of Apple stock
Before you decide to invest in Apple or any other stock, you should make sure you have thought through the pros and cons. Even the best investments come with risks. Here are some pros and cons of buying Apple stock.
Pros of Apple stock
- Apple is a huge brand. Apple has developed a reputation for making quality products, and in many cases these products are considered a status symbol. This gives Apple unparalleled pricing power and a wide moat in its industry.
- A cohesive ecosystem of products. Apple has done a good job over the years, building products that work together so well that once inside the ecosystem, it’s easy to keep buying Apple and hard to leave. For example, iPhone, iCloud, Apple Watch, and Apple TV work great together and complement each other.
- Industry leader in innovation. Apple prioritizes user experience, be it software or hardware. This customer focus leads to innovative products entering new markets. When the iPhone was first introduced, many considered it a useless product, and now smartphones have become an integral part of everyday life.
Cons of Apple stock
- The days of rapid growth are largely over. Apple is one of the largest companies in the world. While there are many benefits to this, it’s hard to see how Apple can continue to grow at the pace it has for the past 10 years.
- Antimonopoly legal risk. Over the past few years, dozens of lawsuits have been filed against Apple and other tech giants over how much power they have to control pricing and customer behavior. Central to this risk for Apple is the App Store fee, which accounts for the majority of the company’s profits.
- Grade. Apple’s P/E ratio is high compared to historical trends. While the company is in a strong financial and growth position, there is a risk that the valuation could drop to a more normal P/E range, especially during a broader market correction.
Apple Stock – Final Thoughts
As with any investment, due diligence is an important first step before investing in Apple stock. Think about your personal financial goals and whether Apple can help you achieve them.
I hope this article has helped you weigh the pros and cons of investing in stocks and given you the confidence you need to make the decision to buy Apple.