By Lucinda Shen
February 1, 2017

Apple’s shares are looking tempting again. But the iPhone maker’s stock may still be the market’s forbidden fruit.

Apple (aapl), on Tuesday, coming off its first year of sales declines in 2016, reported stellar first quarter earnings for the first quarter of its fiscal new year.

Sales fell nearly 8% in the company’s fiscal 2016, which ended in September. But in the first quarter of its new year, Apple’s sales rose 3%, which was higher than expected, to $78.3 billion. Earnings came in at $3.36 per share, also higher than expected.

That sent Apple’s share price growing again. The stock is up nearly 17% over the past 3 months, including a 7% jump on Wednesday alone, following the earnings announcement. All that begs the question: Have you missed Apple’s latest harvest?

From its price-to-earnings ratio, it doesn’t look like it. Apple’s shares appear to be relatively cheap. As of noon on Wednesday, Apple’s stock traded at $128 with a P/E of 15.3, considerably lower than the S&P 500’s average P/E.

Let’s assume that investors are looking for about 10% annual returns (the analyst consensus over the next 12 months) on the stock. They also expect dividends. Apple has payed out 1.8% of its stock price in dividends over the past four quarters. Add those together and you have an expected return of nearly 12% a year. Doable for Tim Cook (Apple’s CEO) and co.? Maybe not.

Over the past year, Apple’s stock buybacks and dividends, combined, have returned nearly 7%, or $47.3 billion thanks to an accelerated capital returns program. By those calculations, Apple’s earnings would need to grow roughly 5% annually, making the company worth that much more a year, to achieve its 12% return for investors, assuming its P/E stays the same.

The problem: A consistent annual growth of 5% for Apple at this point is a pretty tall order, even if the company plans to unveil a new iPhone sometime this year that is widely expected sell spectacularly. Apple earned $45.7 billion last year. A 5% increase on top of that is nearly $2.3 billion, or over four times what Whole Foods earned in 2016. Each year, that 5% number gets bigger.

And that’s 5%. It might have to do better than that. The reason: Apple’s accelerated buyback program probably isn’t sustainable at its current level. Apple still has another $50 billion or so pledged for buybacks between now and March 2018. And with its often cited $246 billion in cash, the company could afford to continue that buyback program for at least four years. But continuing the buyback program for that long would also limit Apple’s ability to acquire another major growth driver to replace its flagging iPhone sales.

Should Apple end its buyback program as currently planned in March 2018, the company will have to post annual returns closer to 9.5% annually—a figure that seems even more unreachable.

 

Although sales of the smartphone picked up in the first quarter, the company has made clear that it no longer plans to rely on the maturing smartphone market for sales. After all, Apple is facing tough competition in major growth markets such as China, while its plans in India have yet to materialize.

And Apple signaled that it might have other plans for its cash pile. On Tuesday, Cook indicated Apple may be on the hunt for a massive media acquisition. In the past, Apple has reportedly considered buying up the now $74 billion Time Warner, or even $60.3 billion Netflix to be its next big growth driver.

But who knows?

Perhaps the biggest company in the world by market cap still has another innovative virtual reality headset or must-have automatic car to pull out of its hat. If not, its shares could be in the danger zone.

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