Prediction: Apple stock will be below $200 by the end of the year

Apple (AAPL -0.26%) The stock is currently trading around $230, but I think it’s trading on borrowed time. By the end of the year, I wouldn’t be surprised if the stock was below $200, because the fundamentals don’t support Apple’s current share price.

There is a lot of pressure on Apple’s business, and unless something drastic changes, the stock should correct.

Apple’s revenue peaked in 2022 and hasn’t grown since

Apple business needs no introduction. Its devices are in the hands of millions (if not billions) of people, even though Apple seems to have peaked in revenue. Since 2022, Apple’s revenue has not increased at all.

AAPL Earnings Data (TTM) by YCharts.

Companies need growth to sustain a rising stock price, and Apple hasn’t shown that. We’ll find out more about Apple’s latest results when it reports on Halloween night (a scary time to report earnings!), but the early signs aren’t good.

Apple launched the iPhone 16 during the quarter and several reports have indicated that sales of the iPhone 16 are not what the company had hoped for. Since iPhone sales account for roughly half of Apple’s total revenue, this segment needs to perform well for the rest of the business to thrive. This reported weakness has caused Wall Street analysts to revise their expectations for the upcoming quarter, as the consensus earnings per share (EPS) projection has declined from $1.60 30 days ago to $1.55 now.

Falling earnings projections are never a good sign. If the rest of Apple’s results aren’t great, don’t be surprised if the stock takes a hit as it trades at an incredibly expensive valuation.

Apple shares command a massive premium despite lackluster results

Apple stock fetches a much bigger premium than most investors realize. At 35 times trailing earnings and 31 times forward earnings, Apple stock is very expensive.

AAPL PE ratio data by YCharts.

While other stocks are trading at more expensive valuations, these companies are posting impressive growth numbers.

Over the long term, stock price movements are strongly correlated with earnings growth. Thus, when a benchmark such as S&P 500 (^GSPC -0.05%) has an average return of 10% per year, which is the level of earnings growth a company typically needs to consistently beat the market, yes both securities are quoted at the same valuation.

Last quarter, Apple’s earnings per share (EPS) grew at a rate of 10%. In the fourth quarter of fiscal 2024 (which ends around September 30), analysts expect growth of 14%. Both numbers are at or slightly above the S&P 500’s long-term average. However, with the S&P 500 trading at 24.7 times trailing earnings and 23.8 times forward earnings, Apple maintains a 43% and 32% premium to these respective valuation metrics.

Best-in-class companies usually get a premium rating because of their execution and perceived stability, which Apple absolutely qualifies for. The question is, how much is this worth? I can’t decide for the market or you, but for me, the current premium Apple is getting is too high.

There are too many stocks I can buy right now that are trading at much cheaper valuations that are growing faster than Apple. Buying these stocks instead of Apple will likely boost my long-term returns, so they make much better buys.

Meanwhile, if Apple doesn’t report strong fourth-quarter results, its stock could fall below $200, as its current price means the company needs to execute perfectly. Early signs are that it hasn’t, and this could be the catalyst the stock needs to take it down.