If you've owned Apple (AAPL -1.32%) stock over the last five years, chances are your position has grown to become a large percentage of your portfolio. Shares are up an incredible 330% over this period, obliterating the S&P 500's 94% gain over the same period. This may put some investors in an uncomfortable position, prompting them to consider trimming the position to reduce the risk of being too overweight in a single security.
So, for those investors with an "overweight" position in the stock, is now a good time to sell some shares?
Times have changed
Sure, tenaciously holding onto Apple shares over the long haul may be the reason some shareholders have done so well in recent years. But the past is not always indicative of the future. For instance, one major difference in Apple stock today compared to five years ago is its valuation. Five years ago, the stock only earned a price-to-earnings ratio of 18. Today, the stock commands a price-to-earnings ratio of about 34.
Another way the company's situation differed substantially in 2019 from today was its net cash position as a percentage of the company's market capitalization. Apple's net cash of $102 billion at the end of its third quarter of fiscal 2019 amounted to nearly 11% of its market capitalization at the time. This significant position gave Apple excess cash beyond its regular cash flows to help repurchase huge sums of shares relative to its share count. Net cash today is $52 billion, or less than 2% of Apple's multitrillion-dollar market cap.
There's a mismatch in valuation and growth
Perhaps the biggest problem with Apple stock today is the huge discrepancy between the company's growth profile and the stock's valuation. A price-to-earnings multiple in the thirties suggests investors expect strong growth from Apple's underlying business for years to come. Yet Apple's fiscal third quarter revenue only increased 5%. Sure, the market consensus seems to be that the company's integration of artificial intelligence into its products will reaccelerate sales, but there's no guarantee this will play out. And even if it does, it's arguably already priced into the stock.
Time to trim?
Though it may not be wise for Apple shareholders to sell all of their shares, it likely makes sense to sell some -- perhaps enough to make the position equal weight to some more conservatively valued stocks in an investor's portfolio. With Apple's price-to-earnings ratio currently more than 40% higher than the S&P 500 market index's P/E of 24, the risk/reward profile for the stock simply isn't as compelling as it was in years past.
Investors, of course, should carefully consider their own financial situation before making a decision about what to do with their Apple stock, but it may be worthwhile for investors overweight in the stock to consider taking some profits off of the table and redeploy that cash into better opportunities.
