Apple (AAPL) is in the spotlight once again, this time due to an abrupt decline in smartwatch sales. According to a new Counterpoint Research study, Apple Watch shipments fell by 19% year-over-year in 2024, with a precipitous drop in North America, which is its biggest market. As one of Apple’s flagship product lines, this drop caught the attention of investors as part of larger debates over product saturation and innovation fatigue.

However, even with weakness in wearables, Apple is still a cash-generating behemoth. With margins at the forefront, the company consistently outperforms almost all benchmarks. Investors are now left with a decision: Is the slump in smartwatches a warning sign, or just a temporary blip in Apple’s diversified growth engine?

About Apple Stock

Apple (AAPL), headquartered in Cupertino, California, is a global leader in consumer electronics and software, offering products such as the iconic iPhone, Mac, and Apple Watch. Apple, with a market capitalization of around $3 trillion, is a market leader in the technology space.

Over the past 12 months, AAPL shares have delivered moderate returns. A year-to-date loss of more than 20% underperforms the S&P 500 Index ($SPX) as Apple navigates shifting demand cycles and macroeconomic pressures. However, long-term investors have seen strong capital appreciation, with Apple remaining a defensive name in uncertain markets.

Valuation is high, consistent with Apple’s high margins and recurring streams of income. Its forward price-earnings ratio is at 27.51x, roughly in the middle of its historical range but higher than many of the company’s peers in terms of hardware. Its price-sales ratio is 7.5x, with its price-cash flow ratio at 25.7x. These numbers mean the stock is fully valued, though perhaps a tad rich, compared to slower growth in the top line. Apple’s 167.2% return on equity and 31.35% return on assets, though, make premium pricing acceptable in the view of many investors.

Apple does pay a modest dividend but is not commonly seen as an income stock. Its dividend yield is modest relative to the overall market and does not have a material impact on investor sentiment.

Apple Misses on Smartwatch Sales

Although Apple outpaced estimates in its latest quarter, the 2024 drop in Apple Watch sales proved to be an area of weakness. Apple Watch shipments dropped 19% year-over-year, with the greatest decline coming from North America, which is its largest-volume market. Analysts attributed insufficient significant innovation in the Series 10 as the leading cause of the slowing demand.

Counterpoint expects there to be a turnaround in 2025 in the form of an overhauled wearable lineup from Apple. A new SE and improved Watch Ultra 3, which reduced market share from 10% to below 8% in Q4, would do just that. The SE, Apple’s cheaper smartwatch, comprised the majority of post-launch shipments, highlighting the increasing price sensitivity in the market.

The positive news: Apple’s bottom line is still strong. The company reported net income of $24.78 billion of net income on revenue of $95.36 billion in its recently reported fiscal Q2. 

The company has not officially confirmed plans for a redesign or timeline for the new models, yet hopes are high for an autumn 2025 hardware refresh. In the interim, sales of the smartwatches may continue to represent a soft point in Apple’s mix of revenues.

What Analysts Predict for Apple Stock

Apple currently earns a “Moderate Buy” analyst consensus rating. Out of the 37 analysts covering the stock, 18 have it rated as “Strong Buy,” while 12 have it rated “Hold” and 2 have it rated “Sell.” Sentiment turned more bearish over the last three months, marked by modestly downward EPS revisions and concerns about product saturation.

Its mean target of $233 indicates potential upside of approximately 17% from the company’s current stock price. Although not the highest among mega-cap technology stocks, this target reflects optimism in Apple’s potential to sustain earnings quality, streamline its supply chain, and capitalize on its expanding services segment.