3 Reasons to Be Bearish on Apple Inc. (NASDAQ:AAPL)

AAPL_StockApple Inc. May Be a Great Company, But Not a Great Stock

Apple Inc. (NASDAQ:AAPL) released the opening weekend sales figures for iPhone 6s and iPhone 6s Plus this morning—a whopping 13 million phones in just three days! Sales numbers have surpassed the previous year’s sales of the iPhone 6 and 6 Plus by three million.

And yet, AAPL stock opened this morning with a major setback to Apple bulls. The stock has dipped over 1.1% and is continuing to slide. Despite the great news coming from the Apple HQ, why is the stock still in hot water?

Here are a few indicators as to why the market is taking the stock heavy-handedly.

1. Cyclicality

With news of the great stock market crash of 2015 already making rounds, many are questioning whether the company can stand the test of time (read, recession). The company faces the greatest challenge of creating a need out of a want in an economic downturn when the average consumer will struggle with meeting his needs rather than wants. Already posing a threat is the struggling economy in China—a big contributor to Apple’s revenues.


2. Insider and Institutional Selling

In the past 12 months, we have seen the company insiders slowly ditching the AAPL stock, raising red flags about its future price appreciation. If the company executives have low faith in the stock, it goes without saying that an average investor must gauge it on the same scale. Institutional interest for AAPL has likewise decreased.

Overall institutional selling has outweighed institutional buying in the recent quarter. Despite some hedge funds showing faith in the stock, many are adjusting their holdings down, driving a push towards a lower price.

3. Short Interest

The stock also holds one of the top short interests, even surpassing shorts’ usual favorite, Blackberry Limited (NASDAQ:BBRY). Historically, short interest and Apple’s stock price have moved inversely. An increasing short interest raises bearish alarms. A short squeeze also seems unlikely amid the increasing supply, courtesy of AAPL bears.

Another important aspect to note here is that this year’s opening weekend figure includes Chinese sales. Compare this to last year’s iPhone 6 and 6 Plus sales figure of 10 million phones which excluded sales from China. Alternatively, China, which is touted to become the next big market for the Apple handsets, contributed between two to three million this year; the year-over-year sales increase, excluding China, remained relatively modest.

As many continue to liken Apple to a cult, this tech stock remains one of the most speculative ones on the market. Seemingly, AAPL has fallen prey to the “growth vs. value paradox” where it trades like a volatile, eye-candy growth stock but has the fundamentals of a dividend paying, low P/E value stock. For Apple to continue beating the market, it must surpass previous sales numbers to continue boasting growth.

I see the stock to be finally transitioning from a growth story towards a less volatile value play, which means it is going to settle for a more meaningful, stable price. A forward P/E of 11.5 to 12.5 and an estimated EPS forecast of $9.13 gives the stock a fair value of $105.00 to $114.00 for 2015.

Read More: