Is Apple in Deep Trouble?
I have been bearish on Apple (AAPL) for almost a year now, and although the stock is down about 10% from my first sell recommendation, it has rallied strongly on the back of strong Q4 earnings over the last few weeks. With the stock up almost 20% from its 52-week low levels, I think the upside in Apple is pretty limited at this point in time, which is why I think investors should use the recent rally to sell the stock.
Beating iPhone 6 is impossible
There was a huge pent up demand for a large screen iPhone, especially in China, which is why the iPhone 6 launch was a great success.
Since there were no significant upgrades in the iPhone 6S that could compete with the pent up demand for the iPhone 6, sales of the device declined on a year over year basis for the first time in Apple’s history.
With the iPhone 7 scheduled to be unveiled later this month, I think the device will be an underwhelming performer once again. Samsung has taken a huge bite from the high-end smartphone market by launching the highly successful flagship device, Galaxy S7.
Samsung said its net income for the quarter rose 2% over last year to 5.85 trillion won, compared to 5.75 trillion won last year.
Earnings beat the analysts’ estimates, which had been revised upward in recent months to reflect stronger-than-expected sales of the Galaxy S7. According to Counterpoint Research, Samsung has managed to sell 20% more Galaxy S7 and S7 edge units during the first month as compared to the S6 duo. The growth was strong in the remaining months as well and is bad news for Apple.
With the smartphone market saturating and Samsung already taking a bigger bite from the high-end segment than it had last year, Apple’s sales are destined to decline as it has a less number of customers to target than it had last year and also because the iPhone 7 isn’t expected to have any massive upgrades.
After the recent rally, I think Apple is a strong sell going forward. Apple’s days of reporting strong growth are over, and unless the company increases its dividend substantially, I can’t see the stock sustaining its current valuation through the launch of the iPhone 7.
Disclosure: No position