Every investor would agree that the stock market is a fantastic asset class for people to build life-changing wealth. Compounding can work its magic, leading to tremendous results.
However, there are specific businesses that have absolutely crushed the market, as defined by the S&P 500. Just look at tech giant Apple(NASDAQ: AAPL). The iPhone maker has produced a total return for its shareholders of 170,000% ever since it started trading on the public markets in December 1980. That monster gain means a $1,000 investment back then would be worth a jaw-dropping $1.7 million today.
Apple has undoubtedly been one of corporate America's most prominent success stories, so it's worthwhile to look back and try to understand what factors contributed to its rise. Then, we can answer if the consumer discretionary stock is a worthy portfolio addition today.
One of the world's most valuable companies
As of this writing, Apple is worth a whopping $2.7 trillion. Only Microsoft carries a higher market cap. A company doesn't get to that kind of valuation without doing some things right.
Apple's shares have performed so well precisely because the company's revenue and net income have skyrocketed historically. Perhaps the most important factor that has propelled this business is its incredible brand strength, which is what supports its economic moat and keeps competitors at bay. Selling popular hardware devices that consumers absolutely love also gives Apple pricing power.
Speaking of hardware, this business might be second to none when it comes to product innovation. The iPhone might be the single greatest product introduction in modern history, from both a financial perspective and how it influenced society. This competency has translated to other areas, both in terms of hardware and services that Apple offers.
Apple might be an American-born enterprise, but there's no denying that it has become a global icon. In fiscal 2023, the majority of total revenue was derived outside the U.S. This points to its broad appeal from consumers everywhere.
Should you buy Apple stock right now?
Even in more recent times, Apple shares have been a big winner. In the past five years, the stock is up 249%, a gain that crushes the broader Nasdaq Composite Index. The great Warren Buffett is a huge fan of the business, allowing Apple to become a massive 43% weighting in Berkshire Hathaway's portfolio today.
But with the stock down 12% from its peak price, which was achieved at the end of last year, is Apple a smart buy? To be clear, I believe that investors shouldn't add this business to their portfolios. There are two reasons I feel strongly about this viewpoint.
First is Apple's growth outlook. This is an extremely mature enterprise today. It still relies heavily on the success of the iPhone, with the hope that consumers continue upgrading their devices frequently, even though new features might not be as game changing as they were a decade ago.
Yes, the services division is reporting solid sales gains. But that wasn't enough to prevent Apple from posting a revenue decline in fiscal 2023. There's no reason to believe the business can introduce a revolutionary product to get meaningful revenue growth going forward.
Apple's current valuation also leads me to believe that the return potential is limited. You can scoop up the shares today at a price-to-earnings ratio of 27.3. A valid argument can be made that a competitively advantaged business like this with outsized profitability deserves that valuation. However, I believe it's an expensive entry point that significantly reduces the likelihood that Apple will outperform the S&P 500 in the years ahead.
This stock was a huge winner in the past. I'm not sure if that trend will continue.
Should you invest $1,000 in Apple right now?
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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
