This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Warren Buffett is responsible for putting up tremendous returns as CEO of Berkshire Hathaway. But maybe his most lucrative bet came in the past decade, when the conglomerate purchased shares in a business that has put up a monster 900% total return since the start of 2016 (as of March 4).
Even after trimming a sizable portion of the position over the past year, this one stock still represents 25% of Berkshire's $288 billion portfolio. Here's more about this business and the factors that likely attracted Buffett.
Piquing Buffett's interest
In the first quarter of 2016, Berkshire bought shares in Apple (NASDAQ: AAPL). While Buffett typically shied away from making investments within the tech sector, he viewed this company as a powerful consumer brand more than anything else.
That brand strength has been key to Apple's success. Selling innovative products that are extremely easy to use, while positioning itself at the premium end of the market, resonated with consumers. This still holds true today.
Buffett also likely appreciated Apple's pricing power. It charges huge sums for its hardware devices. And historically, this hasn't hurt demand. There are a whopping 2.4 billion active Apple devices globally.
Investors know Apple as one of the most financially successful enterprises ever. This was the case when Buffett and Berkshire first bought the stock. In fiscal 2015, Apple produced $53 billion in net income on $234 billion of revenue. Its profitability remains jaw-dropping.
The balance sheet is also in pristine shape, which the Oracle of Omaha can appreciate because it reduces financial risk. As of Dec. 28, Apple carried a net cash position of $45 billion.
It's first important to identify a high-quality business. But Buffett does not want to overpay. He was able to scoop up Apple shares at a cheap valuation. During the first three months of 2016, the stock traded at an average price-to-earnings (P/E) ratio of 10.6. With the benefit of hindsight, this purchase price looks like an absolute steal.
Should you buy Apple shares right now?
Since Buffett's track record speaks for itself, it makes sense why investors might immediately think his stock holdings are automatic buys for their own portfolios. However, in this instance, I believe investors should be a bit more critical and think independently. In fact, I don't think Apple is currently a smart buy.
Consider its growth. In fiscal 2024 (ended Sept. 28), revenue increased just 2%. That improved to 4% growth in Q1 2025. But it's worth mentioning that Apple's sales in the latest fiscal quarter were roughly the same as three years before. Clearly, the top line is stagnating.
Apple generates more than half of its revenue from the iPhone, which remains its crown jewel. Even with the introduction of Apple Intelligence, consumers aren't showing an inclination to quickly upgrade to the latest models. That's not an encouraging trend.
It's becoming evident that the iPhone is in a more mature stage of its lifecycle. And it's increasingly unlikely that the company can introduce a new game-changing product to supercharge growth.
The current valuation tells us a different story, though. As of this writing, shares trade at a P/E ratio of 37.8, which represents a 65% premium to the trailing-10-year average. The market still views Apple in a very favorable light, probably because of these factors.
But low growth prospects and an expensive valuation are two reasons why investors shouldn't buy the stock today.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
