History Says You Should Know These 3 Things Before Buying Apple Stock (AAPL)

Apple (NASDAQ: AAPL) has been a wonderful business for investors. Just ask Warren Buffett: Berkshire Hathaway, the conglomerate that he currently chairs, purchased its initial stake in the consumer tech company in the first quarter of 2016. Since the start of that year, shares have soared 1,160% (as of Sept. 16).

The momentum hasn't let up. Apple recently traded just 2% off its peak. Prospective investors might be wondering if it's time to take a closer look at the business in the hope that they can achieve winning returns.

Before rushing to buy this "Magnificent Seven" tech stock, though, history says you should know these three things about Apple.

Image source: The Motley Fool.

1. Later than others, but better

Investors who have long followed Apple know that the business is never the first to disrupt or innovate in any market category. The iPhone, which remains the company's flagship product and its biggest moneymaker, was launched in 2007. At the time, there were already many popular smartphones available, but Apple was able to completely upend the market.

Management proved that it can introduce new products and services later than rivals and still be wildly successful. The business simply does things better. The seamless integration of hardware and software that creates its powerful ecosystem is what supports Apple's competitive position.

This thinking should be applied to what appears to be the company's slow progress with artificial intelligence (AI). It just released Siri AI after multiple delays, as part of its Apple Intelligence capabilities. While investors have criticized the lack of any groundbreaking AI announcements, I have no doubt that the business will prove the naysayers wrong.

That's because Apple operates from a position of strength. Its 2.5 billion active devices give it an unparalleled distribution edge. When individuals interact with AI, they will lean on the company's ecosystem.

2. Earnings growth matters in the long run

Over the short run, market sentiment can have a profound impact on stock prices. But in the long run -- say, several years and decades -- nothing matters more to how shares perform than the trajectory of earnings. Throughout its history, Apple has done a fantastic job growing its profits. In the last decade, net income was up 282%.

Net income climbed 20% year over year through the first nine months of fiscal 2026 (ended June 27). Demand for the iPhone 17 family has been off the charts, lifting the company's financials.

However, it's hard to imagine this pace keeping up for a long time at such a huge scale. Sell-side analysts hold a consensus view that earnings per share will rise at a compound annual rate of 13% between fiscal 2025 and fiscal 2028.

3. Don't overpay for shares

As previously mentioned, Berkshire Hathaway initiated its Apple position more than a decade ago in the first quarter of 2016. During those three months, shares traded at an average price-to-earnings ratio (P/E) of 10.6. With the benefit of hindsight, this looked like an absolute steal of an opportunity. Investors who followed in the Oracle of Omaha's footsteps registered huge gains.

This points to one of the core philosophies of successful investing. And that is to never overpay for a stock. In fact, it's much better to acquire shares in a great business at a lower valuation, all else being equal, than at a more expensive one.

Apple is one of the best companies that the world has ever seen. However, its stock is not cheap today. The market is asking the investment community to pay a P/E of 38.1 right now. This is a 259% premium to what Berkshire and Buffett first paid.

It's unlikely Apple produces outsize returns over the coming years and decades, at least similar to what we saw in the past. Prospective investors should keep this in mind before making any decisions.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.