Apple has been one of the best-performing stocks in modern history. According to the company, there are now over 1 billion iPhones in active use worldwide.
With Apple's brand recognition 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? That all depends on your financial goals, current assets, and risk tolerance.
Here are five things you need to consider before you buy Apple stock:
1. Apple Stock's History
Apple had its IPO (initial public offering) on December 12, 1980, at $22.00 per share, trading under the ticker AAPL. Since then, there have been five stock splits, so if you compare the current market price, the split-adjusted IPO price was 10 cents.
Here is Apple's stock split history:
- 2-for-1 basis on June 16, 1987
- 2-for-1 basis on June 21, 2000
- 2-for-1 basis on February 28, 2005
- 7-for-1 basis on June 9, 2014
- 4-for-1 basis on August 28, 2020
If you had been lucky enough to invest $1,000 at the IPO, you doubled your investment many times over. Your initial $1,000 would now be worth over $1.7 million as of this article's date of publication, which equates to an average annual return of almost 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 what is known as the FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google). These stocks are famous for their remarkable growth in recent years and dominance in their respective fields.
2. Research Apple Stock's Fundamentals
If you want to invest in individual stocks, one of the most critical steps involves evaluating the company's fundamentals, and Apple is no exception.
Good investors spend time researching before buying a stock to get a sense of its current value and future prospects. Some of the things you will want to research include:
- net income
- cash flow
- competitive analysis
- company management
- overall industry trends
A great place to start your research is Apple's investor relations site. You can find all of their SEC filings, including the quarterly and annual reports. These reports include an overview of the business, financial statements, disclosures of market risk, and much more.
You can also use your broker's research tools or free online sites to analyze key financial metrics such as return on equity, price-to-earnings ratio, and dividend yield.
Before Warren Buffett invests in a company, he will read all of its annual reports going back to the beginning to understand how the business works. While you may not be able to research stocks like Buffett, it's a good idea to put some time into learning as much as you can about Apple before purchasing the stock.
3. Does Apple Fit Your Investing Goals?
Even the greatest company in the world won't be the perfect fit for everyone's portfolio. Before buying Apple stock or any other stock, make sure you have clear investment goals and know how the stock will fit into them.
For example, if you have a short investment horizon, investing in individual stocks may not be the best fit. Over the long term, stocks have proven to provide reliable returns, but there is much more volatility in the short term.
You should also consider your asset allocation strategy. How much of your overall portfolio do you want to invest in stocks vs. bonds or other investments like real estate? And out of that amount, how much do you want to invest in a single company? While picking individual stocks can lead to market-beating returns, it can just as easily go the other way.
The less diversified your portfolio, the riskier it may be. Before buying Apple stock, consider how it will affect your overall mix of investments. Would you be too invested in technology 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 investing goals and decide that Apple would be a good fit for your portfolio, the next question to ask is how much to invest.
It would help if you considered how much money you have to invest and how big of a part you want Apple to play in your portfolio. As a rule of thumb, stocks should be considered long-term investments. You should only invest money you won't need in the short-term into the stock market. This advice is especially true for buying stock in individual companies like Apple. A bad quarterly report, negative analyst opinion, or even general market sentiment could quickly move the price by 5-10% or more in a matter of days.
Next, consider how you are performing against your other financial goals. For example, if you don't yet have an emergency fund, you may want to prioritize that over long-term stock investing. Most experts advise three-to-six months' worth of expenses as a good goal. Your emergency fund should be easily accessible in case of job loss or other emergencies, and individual stocks tend to be too volatile in the short term to be relied upon for emergencies. If you track your expenses and know your rough household budget percentages, it is relatively simple to calculate how large your emergency fund should be.
If you have a fully-stocked emergency fund and have considered your household budget, the final piece of the puzzle is determining your buying strategy. If you have a significant amount of money to invest, following a dollar-cost averaging strategy may make sense. With this strategy, you will invest a set amount, say $1,000, per month in Apple over several months or even years. You can mitigate the risk of putting all your money into the stock market when prices are high by investing over a more extended period. As Apple stock trends up or down, you will be able to buy in at many different price points.
5. Pros and Cons of Apple Stock
Even the best investments have risks. Before you commit to investing in Apple or any other stock, you should make sure you think through the advantages and disadvantages. Here are some of the pros and cons of buying Apple stock.
Apple Stock Pros
- Apple is a huge brand. Apple has built a reputation for quality products, and in many cases, these products are seen as a status symbol. This advantage gives Apple unparalleled pricing power and a wide moat in their industry.
- A tightly-knit ecosystem of products. Over the years, Apple has done an excellent job of creating products that work together so well that it is easy to keep buying Apple and hard to leave once you are inside the ecosystem. For example, iPhone, iCloud, the Apple Watch, and Apple TV all work seamlessly together and build on each other.
- An industry leader in innovation. Apple prioritizes user experience, whether that's in its software or hardware. This focus on customers drives product innovation into new markets. When the iPhone was first introduced, it was widely seen as a product no one needed, and now smartphones are an indispensable part of daily life.
Apple Stock Cons
- High growth days are mostly over. Apple is one of the biggest companies in the world. While that provides many benefits, it is hard to see how Apple could continue to grow at its pace over the last ten years.
- Antitrust legal risk. Over the last few years, there have been dozens of lawsuits against Apple and other tech giants over how much power they have to control pricing and customer behavior. Central to that risk for Apple is the App Store commission rate, which accounts for a large piece of company profits.
- Valuation. Apple's P/E ratio is high compared to historical trends. While the company is in a solid financial and growth position, there is the risk that the valuation could decline 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 essential first step before investing in Apple stock. Consider your personal financial goals and whether Apple might help you achieve them.
Hopefully, this article has helped you weigh the pros and cons of stock investing and given you the confidence you need to decide on buying Apple stock.
This article was produced and syndicated by Wealth of Geeks
Featured Image Credit: Shutterstock.
Andrew is the founder of Wealthy Nickel where he writes about all things personal finance. He has a passion for helping people pursue financial freedom through saving money, making money, and building wealth. Andrew documents his family’s journey to financial independence through side hustles while raising 2 kids on a single income