Apple's Biggest Source of Profit Growth Is Disappearing
Apple (NASDAQ: AAPL) is about to set a new milestone.
Any day now, the iPhone maker could become the first American company to reach a $2 trillion valuation. Shares of the tech giant have boomed during the pandemic, climbing 56% year to date and 120% over the past year. Apple's devices and services have become essential during the crisis and investors have been bidding the stock higher over anticipation of its 5G iPhones, a rumored subscription bundle, and strong growth in wearables like Airpods and its high-margin services segment, which includes the App Store, AppleCare insurance, and subscriptions like Apple Music and Apple TV+. The company even seems to be getting a tailwind from the pandemic, which has driven increased purchases of iPads and Macs as well as app downloads for things like mobile games.
That bullishness has sent Apple's valuation to levels not seen since 2008. The company's price-to-earnings (P/E) ratio is now 34.9, implying that investors expect significantly higher earnings growth in Apple's future than in the past decade. However, that same multiple expansion that has driven the huge share appreciation directly threatens Apple's biggest source of profit growth -- share buybacks.
Source Fool.com
