After a captivating Apple’s Worldwide Developer’s Conference last week on Monday, this week Apple is finding itself in a really terrible situation. Apple shares fell as much as 4 percent Monday morning, on track for a second-straight day of losses due to mounting concerns about unsustainably high stock prices. The iPhone maker has now lost 7 percent of its value in just two days.
The decline Monday came after Mizuho downgraded the stock to neutral from buy and lowered its price target to $150 from $160.
I would want to believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside from here on out.
The iPhone maker’s stock fell 3.9 percent Friday as major tech stocks suddenly plunged. It was down 3 percent as of 10:18 am Monday.
Investors already expect strong iPhone 8 sales in the coming product cycle, likely limiting gains in Apple shares. And the same consumers driving those solid sales this time around will likely not spend on a new iPhone soon, reducing potential growth in fiscal year 2018.
Customers may also want to wait for the iPhone to adopt new OLED display technology at a lower cost.
In my view, Apple’s pricing is likely to become the main hurdle to meaningful expansion of its installed base.
I also expect the growth in China “is likely to remain weak” in the near-term, while the Indian market remains constrained due to limited affordability. The consensus estimate of 30 percent growth in services revenue per user over the next two years also “seems high”.
I still remain with the view that Apple maintains a very strong franchise and could continue to gain incremental share of the smartphone market; however, the pace of share gains will likely meaningfully moderate as the market becomes more saturated.
Some would also want to believe that Apple’s recent downward volatility is a negative signal for the market.
In a nutshell, I’m not sure what the right value is for Apple, but it is extremely concerning, that a stock of this importance can trade like that – on virtually nothing! After Friday’s price action, I can’t be anything but bearish near term. The ‘healthy’ rotation seems to hide the fact that for brief moments of time there was virtually no liquidity (at a price) for some of the biggest and most loved stocks.
