Is AAPL Stock a Value Trap?
Apple Inc. (NASDAQ:AAPL) is known as the media company darling that was transformed by the late Steve Jobs. His visionary thinking took the world by storm as the “iPod” led to the “iPhone” and the smartphone revolution. Like a phoenix rising from the ashes, AAPL stock rose from a low on April 27, 2003 to a high on April 28, 2015 for a staggering 15,529.76% return. Unfortunately, that growth company is no more—Apple stock’s gains are now a figment of its past.
Since the highs reached on that fateful day, shares of AAPL stock have declined 26.7%. Analysts will argue that Apple Inc. trades at a low price-to-earnings (P/E) ratio and is attractive as a value play. However, I think Apple’s best days are behind it.
Here are just some of the factors plaguing Apple’s future…
Revenue, net income, and even margins are down year-over-year.
Apple’s staple product is the iPhone. Sales for it were down this year for the first time since its product launch in 2007. This is concerning given that the iPhone makes up approximately 65% of sales. Apple is losing ground in China, too, a market that was once touted by CEO Tim Cook as being very important for Apple’s growth.
Sales of Apple products came in at 10.8%, down from 12.0% a year ago. Products like the “Apple Watch” have been such a let down that even Apple Inc. won’t release projected sales figures on the once-much-anticipated item.
Apple needs a new innovative product to reignite growth and currently, the company is coming up with nothing.
Apple sells its products worldwide, priced in U.S. dollars. Of course, foreign currency fluctuations cause the products to increase and decrease in price.
As a Canadian, I remember walking to the Apple Store when the dollar was at par and purchasing an Apple product at what seemed like much more of a reasonable price. Today’s prices have adjusted to the decline in the Canadian dollar, meaning Apple’s price tags in the Canadian market are now much steeper. My personal consumption of Apple products has slowed as a result.
In total, 67% of Apple revenue was derived from international sales in its last quarter. That’s a considerable sum. It is easy to understand that the current fluctuation in global currency values can wreak havoc on the company’s reported earnings. Unfortunately, there is no doubt that Apple’s sales and earnings will suffer due to the severe drop in the British pound following the Brexit vote.
Lack of Performance
On the chart, AAPL stock has traded in a large pennant since peaking in 2015, with $90.00 being the line in the sand. It also represents the previous high before Apple corrected approximately 50% in 2012 and 2013.
Chart courtesy of www.StockCharts.com
Each and every time Apple approaches this technical level, investors step in to support its share price. Each subsequent rally ends at a lower high, as investors exit positions. When a trend is so clearly defined, there is no doubt that many have set their stops at the $90.00 level. A confirmed close below $90.00 will set off a tide of selling.
The Bottom Line on Apple Stock
My advice: stay clear of AAPL stock.
The growth days for this tech giant are behind it. Apple sales are in decline and are trending further downward. I would recommend watching the technical pattern to see which way the share price will resolve. A drop below $90.00 will likely set off a round of selling.
The picture isn’t rosy at best. In the business world, if you are not growing, you are dying. It’s as simple as that.