Time to Give Up on Apple Stock?
Apple Inc. (NASDAQ:AAPL) is no longer the same innovative technology company it once was when it launched the “iPhone” way back in 2007…and it’s starting to show in the Apple stock price.
The problem is that Apple has yet to come up with another game-changing product or solution. The end result has seen loyal holders of Apple stock run to the exits, driving down the share price by about 28% over the last 52 weeks.
On Thursday, Apple stock broke below $90.00 per share for the first time since June 26, 2014. Apple saw its market value of $494 billion decline to below the $500-billion market cap of Alphabet Inc (NASDAQ:GOOG). It was less than a year ago when Apple traded at a 52-week high of $132.97 per share and the company couldn’t do anything wrong.
Chart courtesy of www.StockCharts.com
The Rotten Core at Apple
Of course, that has not been the case recently, as Apple is seeing declining demand for its iPhone and sales of its “Apple Watch” and “Apple Music” are doing little. The stock market has turned against Apple stock for its lack of new technological innovations.
The Apple Watch was expected to be the next big product that would supercharge the Apple ecosystem of products and solutions. This hasn’t happened.
The Apple Watch sold some 12 million or so to date and so far, it’s more of a gimmick than a must-have device. Having seen the Apple Watch in action, I just don’t see it as a must-have product, especially with its relatively high price versus the price tags on a host of competitors.
The reality is that if you have the iPhone, why would you really need an Apple Watch? I may be wrong in my assessment but based on the fact that a mere 12 million watches have been sold versus the hundreds of millions of iPhones, I’m probably correct.
So until Apple launches the rumored “Apple Car,” which I doubt will happen, or somehow produces a game-changing product, the market will continue to value AAPL stock based on the sales of its iPhone.
The next-generation “iPhone 7” is expected to launch later this year, but unless it’s a radical improvement from the “iPhone 6,” I question why someone would lay out crazy cash for owning it. Of course, I wouldn’t but there are probably millions who will.
Apple CEO Tim Cook will need to somehow reinvigorate Apple’s image. The iPhone used to be the must-have smartphone but there are numerous great “Android” devices out there that are better for the same price or less.
The fear is that Apple may have to accept lower margins to boost sales. The introduction of the lower-priced “iPhone SE” is expected to boost sales at the lower end, but I’m not sure if this strategy will work.
In the critical China market, Apple needs to defend its market share, but it will not be easy given the influx of cheaper, good smartphones from Chinese manufacturers such as Xiaomi and Huawei.
Apple May Be a Value Trap
For those eyeing the price weakness as a possible entry point, be careful. Apple could be a value trap.
AAPL stock trades at 9.83X its full-year 2017 earnings and pays out a dividend yield of 2.46%.
That seems great at first glance, but consider that revenues are predicted to contract 7.7% in fiscal 2016 prior to a 5.2% bounce in fiscal 2017, according of Thomson Financial.
These aren’t the kind of great metrics you would expect to see in a technology growth stock.
On the earnings side, Apple beat the consensus earnings per share (EPS) by an average of less than three percent in three straight quarters prior to a five percent miss in the fiscal second quarter.
Again, without better results, AAPL stock could be comatose for the foreseeable future—unless something spectacular occurs.
Even the insiders and institutional money are selling Apple. That’s not exactly a vote of confidence for Apple stock investors.