Apple Investors Should Be Prepared for an Ugly Quarter

When it comes to tech stocks, investors always value growth more than earnings power. This is the reason why stocks like Netflix (NFLX) and Amazon (AMZN) are trading over 300x trailing earnings whereas money generating machines like Apple (AAPL) and Gilead Sciences (GILD) have a very conservative P/E multiple.

Apple is due to report its quarterly results today, and although the company will yet again generate billions in profits and revenues, I think the stock is all set to fall under $100.
Despite the massive profits and revenues, investors will focus on Apple’s growth. And it is expected that Apple will report the first year over year revenue and EPS drop in over 13 years. The psychological impact of Apple’s revenue dipping over 10% as compared to year-ago quarter can easily push the stock towards or under $100.

I have been saying since October that the new iPhone 6S will fail to beat the record set by the iPhone 6. Due to the fact that Apple generates over 60% of its revenue from the iPhone, this year over year drop in iPhone sales will ultimately lead to an overall decline in revenue, which in turn will push the stock lower.

Apple did launch the iPhone SE and the iPad Pro, but both of the devices arrived too late to make any significant difference to Apple’s overall revenue. Moreover, with the growth of the overall smartphone market slowing down drastically, investors should not expect the iPhone SE to have any sizeable impact on Apple’s earnings.

Apple is already off about 20% from its all-time highs and due to the unavailability of growth drivers, I expect the stock to remain in the range of $95-$105 for the foreseeable future. Apple’s upside largely depends on the next iPhone and its ability to crack emerging markets like India.

However, Apple has taken significant steps to tackle India as all of its devices cost a lot more in India than in the U.S. Given that people in India have a lot less disposable income, it is no surprise that Apple has struggled in India. And unless Apple tackles the price problem, I expect it to continue struggling in the Indian market.

Apple is reporting its earnings after today’s close and investors should prepare for an ugly report. Although Apple may be able to beat the lowered estimates, investors should not expect the stock to move higher.
Published on Apr 26, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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