While many argue that Apple Inc. (NASDAQ:AAPL) is undervalued, analysts at Pinnacle One Research say (via Seeking Alpha) it’s “mostly just an overvalued hardware stock.” In fact, they say they’re “amazed” at how bullish other firms and many investors are when it comes to Apple and decry those who tell others not to panic or say that Apple stock is worth $1,000 a share.
Apple investors remain too bullish
Pinnacle analysts believe Apple Inc. (NASDAQ:AAPL) has “mostly run its course” and point out that the company’s profit growth has been decelerating. They note that the company did have an incredible 2012 with more than 31% appreciation, the company’s financial growth hasn’t been great for quite some time. They also point out that Apple stock has only gained about 2%, thus lagging far beyond the gains of the S&P 500, which are more than 20%. As a result, they just don’t understand why so many people like Apple.
Alluvial Fund performance update for the month ended May 2021. Q1 2021 hedge fund letters, conferences and more Dear Partners and Colleagues, Alluvial Fund, LP returned 5.4% in May, compared to 0.2% for the Russell 2000 and 1.0% for the MSCI World Small+MicroCap . . . SORRY! This content is exclusively for paying members. SIGN UP Read More
They also point out that Apple Inc. (NASDAQ:AAPL)’s latest earnings report revealed weak iPhone sales, which sent its stock into an 8% slump. The company reported sales of 51 million iPhones during the December quarter, which was about 9% under consensus estimates of 56 million. Pinnacle believes that because of how saturated the smartphone market has become, consumers are starting to be more worried about price rather than new features, which would be a big problem for Apple.
Apple shares too expensive
The firm also points that while hardware companies trade for between .5 and 1 times EV / sales, Apple Inc. (NASDAQ:AAPL) trades at 1.8 times EV / sales. The analysts note that while many hardware stocks have risen because of some kind of business strength, they nearly always fall back down. As a result, they think Apple should be trading at between .5 to 1 times EV / sales.
They note that some argue that Apple Inc. (NASDAQ:AAPL) is an ecosystem company rather than a hardware company, which they believe is true to some degree because of iTunes and other possibilities. However, they point out that about 90% of Apple’s sales come from iPhones, iPads and its Mac PCs, thus making it largely a hardware stock.
Apple’s situation could get worse
The analysts at Pinnacle predict that Apple Inc. (NASDAQ:AAPL)’s problems will only increase over time because the company has historically had high gross margins compared to many other hardware firms. They believe the company’s gross margins will compress even more than they have, particularly because smartphones are becoming more of a commodity, and growth rates are decelerating as new features become fewer and competition increases.
They also don’t put much stock in any of the things some say will save Apple Inc. (NASDAQ:AAPL). Many have said China Mobile is the key to growth for the company, but analysts at Pinnacle don’t think it will help that much in the long term because unit shipments are only “modestly growing,” while average selling prices are declining.
Others continue to hang their hopes on Apple Inc. (NASDAQ:AAPL) entering new product categories, with many speculating that there will be an iTV or iWatch this year. Pinnacle analysts see a less than 50% chance of an iTV launching this year and a somewhat better chance of an iWatch this year. They also think there will be a new payments service from Apple announced this year, which could compete with PayPal. However, they think it will be some time before any of Apple’s new devices or services meaningfully contribute to its finances.