Apple Inc. (NASDAQ:AAPL) stock slumped dramatically today, leaving Wall Street abuzz with suggestions about why the sudden drop happened. The news about Apple shares wasn’t all bad today, as analysts at Barclays upped their price target on the company’s stock from $120 to $140 per share. The analysts cited gross margin expectations, which they believe are conservative.
However, Barclays’ price target increase may have been one factor that weighed on Apple shares today, according to one expert, who said investors may be starting to worry that analysts are getting too bullish on the company.
Electron Capital Partners' flagship Electron Global Fund returned 5.1% in the first quarter of 2021, outperforming its benchmark, the MSCI World Utilities Index by 5.2%. Q1 2021 hedge fund letters, conferences and more According to a copy of the fund's first-quarter letter to investors, the average net exposure during the quarter was 43.0%. At the Read More
Upside seen to Apple’s gross margins
In their report, the Barclays team said it looks like a mix shift toward the larger-screened versions of the iPhone and iPad will give Apple’s gross margins a boost. In addition, they said the upcoming launch of the Apple Watch and other services that come with high margins have not yet been factored into many analysts’ estimates.
As a result, the analysts think Apple’s multiple should expand even more as the company’s revenue from recurring services continues to rise. Recurring revenue streams from services carry “favorable incremental margins,” they wrote in their report.
Morgan Stanley cuts Apple stake
Also today, Morgan Stanley said it cut its stake in Apple by 1%. The firm’s analysts said their financial models continue to suggest a slight reduction in position because Apple shares are still trading close to record highs. They noted that shares of Apple have almost doubled in just the last three years after adjusting for the seven-for-one stock split that Apple completed in June.
In addition to cutting its Apple stake, Morgan Stanley also downgraded the entire technology sector from Overweight to Market-Weight, sending shares of other technology companies falling as well.
Apple trading volume spikes
So why did Apple stock struggle today? Analysts noted an extremely high trading volume of about 6.7 million shares at about 9:50 a.m. Eastern. Reuters reported that this is the biggest one-minute trading volume since Oct. 29.
There’s been a lot of debate today about why Apple shares took a big hit. CNBC talked to several experts who offered varying opinions. A suggestion from analyst Amit Daryanani of RBC Capital Markets was that Apple’s share price slump was related to Morgan Stanley’s downgrade of the entire technology sector and its position cut in Apple. Daryanani also mentioned “chatter of program selling in tech,” reports CNBC.
T-3Live.com partner Scott Redler pointed out that Apple shares surpassed their eight-day moving average for the first time in weeks. He said then after the stock declined under $117, there wasn’t any support for the shares, so they fell to about $111. The stock did edge back upward, however, ending the regular trading day at $115.07 per share.
Disruptive Tech Research founder Lou Basenese suggested that investors may simply be ready to cash out on their investments into Apple. The company’s stock has climbed 25% since its lows in October, easily beating the NASDAQ’s 10% increase during the same time frame.
Basanese also said it’s possible that Barclays’ price target increase had the opposite effect, pulling down Apple shares because investors are becoming skittish on analyst views of the company and perhaps becoming too bullish on it.
Additionally, there has been some chatter on Wall Street that Apple and its peers saw weak Black Friday sales, according to CNBC, and some traders suggested that Apple could be “falling victim to a retailer selloff.”