Apple Inc. (NASDAQ:AAPL), the tech giant with a market capitalization of $2.8 trillion, has been a significant investment for Warren Buffett's Berkshire Hathaway (NYSE:BRKa), yielding substantial returns since its initial purchase in 2016. As of Thursday, Berkshire's stake in Apple stands at $164 billion, making up 46% of its total public equities portfolio. The value of this investment has surged by 577% as of September 8, 2023, outpacing the Nasdaq Composite Index's 175% rise over the same period.
Apple's success has been attributed to its brand strength and customer loyalty. Interbrand ranks Apple as the world's most valuable brand, estimated at $482 billion. The company's combination of popular hardware products, primarily the iPhone, and user-friendly software has fostered a robust ecosystem fostering customer loyalty and high switching costs.
The company's financial health over the past three years has also attracted investors like Buffett. From fiscal 2020 to 2022, Apple generated $277 billion in free cash flow and currently holds a net cash position of $57 billion on its balance sheet.
When Buffett first invested in Apple in the first quarter of 2016, the company's average trailing price-to-earnings (P/E) ratio was just 10.6, indicating that the market wasn't overly optimistic about the business at that time.
However, potential investors today are met with a different scenario. Despite being a colossal enterprise with trailing 12-month revenues nearing $400 billion and more than 2 billion active devices worldwide, Apple has seen revenue decrease year-over-year for the past three quarters. This trend raises questions about future growth potential.
Furthermore, Apple's current trailing P/E ratio stands at 30, approximately three times higher than when Buffett first invested. This valuation, coupled with signs of slowing growth, may discourage investors seeking market-beating returns. As such, while Berkshire Hathaway remains a significant shareholder, potential investors should carefully consider the current state of affairs before buying into Apple.
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