Investors are worried over declining iPhone sales at Apple(NASDAQ: AAPL) -- reported to be down 9% in the U.S. in February, and twice that in China. They are also worried that Apple's lack of a homegrown artificial intelligence product could seriously damage Apple's share price this year. Together those worries go some way to explaining why share prices of the iPhone maker are down about 13% since the start of 2024.
But not all hope is lost. Bank of America analysts still think Apple stock is a buy and could rise as much as 34% to hit $225 within a year.
Is Apple stock still a buy?
Why does BofA believe Apple stock is a buy? In a note out Tuesday, the investment bank cited a 10% rise in Q2 sales at the App Store as a reason to own Apple stock. March data look particularly good, with global App Store sales up 13% (although only up 7% in China).
App Store sales -- and sales of other services, as opposed to hardware -- may be key to Apple's growth rate going forward. On the one hand, Apple had the largest market share of any phone maker globally in Q4, and globally, its phones dominate with 1.5 billion iPhones in use. On the other hand, by this point, anyone who wants an iPhone probably already has one, limiting further hardware growth to sales of replacement iPhones, and new devices yet to be invented. Sales of services such as apps, on the other hand, aren't limited in the same way hardware sales are and could continue growing.
The bad news, though, is that most analysts forecast Apple's earnings growth over the next five years will average only about 10% per year -- or essentially the same growth rate BofA just cited for App Store sales. This reinforces the impression that Apple is no longer a high-growth stock. If "10%" is the best growth rate we can expect from Apple going forward, it's a very real question whether investors should continue to pay more than 26 times earnings for Apple stock.
Should you invest $1,000 in Apple right now?
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Bank of America. The Motley Fool has a disclosure policy.
