Apple Inc. is undoubtedly one of the biggest, most profitable firms in the world, but there is a growing concern over slowing iPhone sales. For this reason, the stock has recently lost excitement for investors. As of now, the likes of Facebook, Amazon and Alphabet are seen as the tech world’s biggest names, and naturally, it has left investors wondering if Apple stock is capable of doing much more than throwing off cash for “widows and orphans,” says Steve Schaefer of Forbes.
No doomsday scenario for Apple
Steven Milunovich of UBS believes Apple is capable, noting that its current stock price suggests the glory days of the firm are already done and dusted.
“If iPhone goes the way of the PC at 5-10% annual declines, the stock could be worth about today’s price. Given the size of the iPhone and the historical difficulty in maintaining hardware margins, this is a reasonable possibility though probably too negative,” the analyst notes.
Apple’s current pricing based on slightly negative iPhone sales growth and a modest offset from services revenue does make sense for a cautious investor, who may not be willing to ascribe much present value to the possibility of future hit products. But, another buying craze helped by the iPhone 7, 8, 9 or infinity or a push by the Apple Watch or an Apple Car, could make investors crave for the stock again.
Apple Inc. is more or less in neutral believes the analyst. “The stock likely is range bound for now with low multiples acting as downside support and lack of demand catalysts an upper ceiling.” UBS analyst has a ‘buy’ rating on the stock with $115 price target, but it doesn’t think any kind of doomsday scenario is likely.
The most bearish case for Apple is a BlackBerry-like fall from grace putting the stock around $70, the analyst says. This would mean a precipitous fall in iPhone sales, a lot worse than the 16% decline seen in the Q1 2016 that prompted a slide in Apple’s share price.
Recent buys and sells – what it means?
NYU professor and valuation guru Aswath Damodaran, in a recent commentary on the buys and sells of Apple Inc. shares by Warren Buffett and Carl Icahn, noted that the latter does not bode well for the iPhone maker in the near-term.
“…..it is possible that Icahn’s momentum detector is telling him that while Apple’s stock price may not be going lower, it has little room to go higher either, at least in the short term, and given his trading track record, I would take that signal seriously,” NYU professor says.
Buffett’s investment can be seen as a ‘desirable endorsement’ of the stock, but Damodaran notes that the investors, who own the stock with expectations of rapid growth ahead need to rethink. Both Berkshire and Buffett have built their reputation on finding value in firms that have fallen out of the market’s favor, and not for spotting fast-growth firms before anyone else.
“Apple is a mature company, with enough cash flows to cover dividends for a generation,” the valuation guru notes.