Apple stock (NASDAQ 🙂 is struggling these days. Shares of the iconic iPhone maker are down about 20% from their high, after closing at $ 108.77 yesterday. The stock reached a 52-week close of $ 134.80 on September 1, but is now underperforming stocks of other megacaps technology companies.
This bearish two-month period occurs after Apple became the first US company to surpass more than $ 2 trillion in market cap in August. Since then, it has lost $ 450 billion in value as investors dumped shares of the Cupertino, California-based technology giant. Apple is now worth $ 1.85 trillion, still the most valuable US company.
While uncertainty surrounding the US presidential race and the vigorous resurgence of the coronavirus played their part in this slump, investors are also becoming more nervous about Apple's valuation following its strong stock rally since the pandemic-induced March.
The stock fell a whopping 6.4% during Friday intraday trading after the company disappointed some investors. It ended the week down more than 5.6%.
After falling this size, the temptation to "buy on the dip" is difficult for some investors to resist, especially when this strategy has repeatedly paid off. Even after recording the latest sell-off, Apple's stock has returned 260% over the past five years, including dividends.
That said, there is clearly some short-term headwinds hurting Apple's stock and we believe there will be more weakness before the stock bounces back. Here are the factors that we believe play a role:
Weakening in iPhone sales
The company's latest earnings report shows that Apple is struggling to get more iPhones to sell – crucial to meeting analysts' current bullish forecasts. Sales of the company's top-selling product fell 21% during the company's fiscal fourth quarter as the pandemic disrupted the global supply chain and delayed the introduction of newer models.
Apple generally launches new iPhones models in September, boosting sales in the fourth quarter. This year, the 5G phones went on sale after October 15, while the iPhone 12 mini and iPhone 12 Pro Max won't be available for pre-order until this week.
If Apple is able to revive iPhone growth in the current quarter, it will justify the optimistic narrative of some analysts who believe competitive pricing for the new models will be the first major redesign in three years. and the appeal of higher speed users are asking to upgrade their phones. As Bernstein analyst Toni Sacconaghi wrote in a recent note:
"The punch line is simple: iPhone revenues must grow at double digits year-on-year in FY Q1, or March must be dramatically stronger than seasonal for this cycle to have a chance to be the super cycle investors seem to anticipate,"
As iPhone sales remain weak, investors are also becoming nervous as growth in greater China, one of the company's key regions, is faltering. Sales from Asia fell 29% in the last quarter, the lowest since 2014.
Apple & # 39; s first 5G compatible handset is a late introduction in China, where local brands have long been offering a range of 5G ready gadgets. “A crucial battle for Apple is the premium smartphone market that Apple once ruled before losing ground to Huawei Technologies Co. in recent years,” according to a recent analysis in the Wall Street Journal.
Despite these challenges, Apple executives remain optimistic that the company is on track to meet its goals. Luca Maestri, Apple's chief financial officer, told Bloomberg Television that he expects the iPhone 12 Pro Max with its larger screen to do "incredibly well" in the region and the company is confident to deliver on that in the quarter from. December to grow.
Bottom Line
There is no doubt that weak iPhone sales have the greatest negative impact on Apple stock. Any potential rebound in sales is highly dependent on the path the COVID-19 pandemic follows from here and how deeply it hurts the global economy.
That said, Apple remains our long-term choice of choice due to the resilience in the company's other businesses for its continued and impressive innovation capabilities.
