Should I Buy Apple Inc.?

I’m out shopping for shares again. Should I add Apple (NASDAQ: AAPL.US) to my wishlist?

Apple and I

With Christmas coming, millions will be adding iPhones, iPads and iPods to their wish lists, but should I go a step further and load up on iStock? Last time I looked at Apple, back in February, the company was struggling to get over the loss of talisman Steve Jobs. Its share price was down 30% since peaking at nearly $700 in September 2012, to trade at $475. The backlash had set in. Fanboys were turning foul. Low-cost competitors were catching up. Apple was giving technoheads nothing to get their teeth into, aside from cannibalised versions of Apple’s existing range.

The mood had soured, but I found the numbers still looked tasty. Q1 revenues: $54.5 billion. Gross margins: 39%. Long-term net debt: nil. Cash mountain: $137 billion. So how has Apple done since then? This week’s Q4 results showed iPhone sales hitting 33.8 million, a quarterly record and up sharply from 26.9 million year-on-year. Revenues increased to $37.5 billion, up from $36 billion. That cash mountain is now $140 billion. The share price is currently $525. Not bad.

Amazing. Really?

But not brilliant, either. Q4 earnings fell for the first time in a decade, down from $41.7 billion to $37 billion. Gross margins dipped to 37%. iPad sales barely budged at 14 million, while Mac sales dipped to 4.6 million, a drop of 300,000. The cash dividend was unchanged at $3.05 a share, and despite returning $7.8 billion in dividends and share repurchases, investors were left feeling a little crabby.

I winced at chief executive Tim Cook’s overheated claim that Apple has enjoyed a “strong finish to an amazing year”? Sorry, Mr Cook, an amazing year would have seen Apple produce a smart watch that everybody simply had to have, or a TV nobody could live without, but we’re still waiting. Still, there is still the Christmas holiday season to look forward to, with Apple predicting quarterly revenues of between $55 billion and $58 billion. Management predictions in September that Q4 revenue and margins would hit the high end of its own forecasts didn’t really come good. Is Apple talking a better game than it is playing?

Still, there is a buzz about the new “thinner, lighter, faster” iPad Air, but this remains a tough market, with stiff competition from cheaper rivals such as Kindle Fire, Google Nexus, Sony Xperia and Samsung Galaxy. Earnings per share (EPS) growth is set to hit 11% in the year to September 2014, after a 10% drop in 2014. But that is a long way from the glory days of 67% growth in 2010 and 82% in 2011. 

Take the tablet, not the stock

The valuation is i-OK at 12.8 times earnings, but for me, Apple is no longer a growth stock. It has reached the point where it should have transformed itself into a solid, long-term income generator, yet it yields just 0.5%, despite activist investor Carl Icahn’s campaign for greater investor rewards. My home is the happy owner of two MacBooks, one iPad and three iPods, but it won’t be hosting Apple’s stock any time soon.

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> Harvey doesn't own any shares in any company mentioned in this article. The Motley Fool owns shares in Apple and Google.