Apple is the flavor of the month on Robinhood.
The iPhone manufacturer is dividing its stock in the end of August.
2 big Wall Street companies have downgraded the stock.
Wall Street is now starting to fall out of love with Apple (NASDAQ:AAPL). Only this month, Bank of America downgraded the stock, assigning a grip rating from the former buy recommendation. Last month, Goldman Sachs claimed a “sell” rating on AAPL.
When you have a look at millennial investors, you wouldn’t feel that opinion has soured, however.
On the past 30 days, Apple has become the most-purchased stock on Robinhood. The stock has welcomed over 160,000 brand new traders on the trading program.
AAPL has outpaced millennial favorites Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX).
AAPL was the very bought stock on Robinhood within yesteryear 30 days. | Source: RobinTrackThis isn’t the time to be spending in Apple, however. Here’s the reason why.
Apple’s Stock Is Comparatively Pricey
From a historic standpoint, Apple’s stock is pricey, which increases the odds of correction. In 1 year, its price-to-earnings ratio has more than doubled from 16 to 34.
Compared to the average price-to-earnings ratio of the S&P 500 Index constituent companies, Apple’s stock is trading at a 30% premium. Currently, Apple’s share of the benchmark index is nearly 7%, a 40-year high.
The price-to-sales ratio of AAPL has doubled too, reaching a level last hit 13 years ago. While its stock has surged by triple digits in the past year, sales of the tech giant have gone up by just single digits.
The last time Apple’s price-to-sales ratio was at this level, the stock corrected sharply. | Source: @charliebilello/TwitterMounting iPhone Problems
The iPhone has been Apple’s most significant revenue contributor for over a decade. In the June quarter, iPhone sales grew by just 1.66%.
The iPhone contributes close to half of Apple’s revenues. | Source SixColorsIn the fourth quarter, they could fall even further due to anticipated delays in the release of a new iPhone lineup. So far, Apple hasn’t revealed when it will release its new slate of iPhones, an event that has traditionally occurred in the fall.
According to Goldman Sachs, a delay of just one month hits revenues by 7% and earnings by 6%.
In China, Apple’s second-largest iPhone market, the company is yet to introduce a 5G smartphone even as competitors have done so already.
The iPhone 12 will be 5G-ready, but a delayed release will leave Apple at a disadvantage. The world’s second-largest economy already has the highest adoption rates of 5G handsets.
Video: What to expect this 5G-ready iPhone 12
The other problem is that Apple continues to introduce cheaper iPhones. While the relatively less expensive iPhone SE boosted sales, it is also cannibalizing higher-priced smartphones. Investors should expect reduced margins from Apple’s most successful product.
The relatively lower-priced iPhone SE boosted sales in a time when they were declining. | Source: @onlyyoontv/TwitterDevices such as Mac desktop computers and laptops, as well as the iPad tablet, are unlikely to compensate as they are replaced less frequently. Sales at these categories rose in this second quarter, but that was due to stay-in-home measures, a one-off event.
“Real Economic Adversity” Out There
The pandemic has led to job losses and declining economic growth around the world. Reduced and lost incomes have and will continue to destroy purchasing power. Apple recognized the economic hardships both at the macro and micro amount while releasing its Q3 results.
CEO Tim Cook said last month:
We’re conscious of the fact that these results stand in stark relief during a time of real economic adversity for businesses large and small, and certainly for families.
Consequently, the iPhone maker declined to provide guidance for the upcoming quarter. That’s never an optimistic sign.
Additionally, Apple’s stock is rising ahead of a split at the end of this month.
Later this month, Apple will split its stock for the fifth time. | Source: @brandcratic/TwitterIf history is any guide, Apple’s pre-stock split period tends to see a price rally. Once the split happens, the stock falls for a considerable period. This is not the time to buy.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN. ) com. Unless otherwise noted, the author has no position from any of that the stocks mentioned.
Last modified: August 8, 2020 7:08 PM UTC