Nasdaq AAPL Apple

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Apple (Nasdaq: AAPL) is having a rough time with dwindling iPhone demand, along with the persistent supply-chain constraints. Inflation, the continuing pandemic, and the unpredictable economy may possibly be affecting the demand for iPhones.

Moreover, iPhone users are not finding anything too special about the new model to entice them to upgrade. In fact, Apple co-founder Stephen Wozniak himself said that the iPhone 13 isn’t much different from the iPhone 12.

Falling Website Traffic Trends

A 1.89% sequential drop in unique virtual visits to the Apple website in the month of October after a two-month rally reflects the demand decline. We found this trend on TipRanks’ Website Traffic tool, which derives a company’s website traffic volume from data sourced from Semrush (SEMR).

Nonetheless, the price of the AAPL stock hasn’t been affected by the iPhone demand decline, and has rallied 5.87% in October as compared to September. This is possibly because Apple is one of the most fundamentally and financially strong global tech titans.

Strong Financial Position

Apple’s strong balance sheet and cash flow generating capabilities are remarkable. As of September 25, cash & marketable securities were at about $191 billion, and total debt at about $125 billion, leaving the company with net cash of $66 billion.

Furthermore, the company returned $24 billion to shareholders in the fiscal fourth quarter, through dividends and share repurchases.

Such solid liquidity helps Apple smoothly pursue growth-boosting initiatives like acquisitions and technological innovations. Also, the ability to increase shareholders’ value makes the AAPL stock attractive for investors.

Focus on the Future

Apple is a forward thinker, as demonstrated by its growing focus on developing autonomous vehicles and augmented reality/virtual reality (umbrella term being XR) technologies. These rapidly emerging areas present lucrative growth opportunities for the long haul.

Importantly, Apple has ramped up its efforts in this direction by acquiring small tech firms dealing in AR hardware, 3D gaming, machine learning, and VR software, like SensoMotoric, Flyby Media, Emotient, TupleJump, Turi, etc. Moreover, Apple’s AR platform —ARKit— helps developers to build AR experiences for the iOS platform.

Experts’ Opinion

Yesterday, Bernstein analyst Toni Sacconaghi weighed in on the factors that might influence the AAPL stock, and decided to reiterate a Hold rating, taking into account the poor iPhone demand and the fact that demand might further decline with the rise of XR devices.

However, he was upbeat about the company’s focus on the future of technology, from eye-tracking to VR headsets. This is because he believes that XR devices will most likely snatch away the demand for iPhones altogether, eventually, preferring them over iPhones to access mobile internet.

“We are generally believers – and while the metaverse's ultimate timeframe and capability is still murky, history has shown that transformative innovation often occurs on its second or third iteration,” he opined, discussing the prospects of the metaverse (a futuristic virtual reality experience). He added, “We believe there is room for an XR device and iPhone to coexist in the medium-term, but that over time, XR devices could ultimately come to replace some or much of the functionality of smartphones.”

The Wall Street analyst consensus, however, is more positive about the AAPL stock than Sacconaghi, with a Strong Buy rating, based on 22 Buys, 5 Holds, and 1 Sell. The average Apple price target of $169.96 indicates an upside potential of 2.81%.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >

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Apple (AAPL) is an American multinational electronics hardware and software company. I am neutral on the stock. (See Analysts' Top Stocks on TipRanks)

iPhone 13 Demand Decrease

The initial thought behind the forecast in diminishing iPhone 13 sales was supply disruptions, but Apple publicly admitted that it's facing demand issues.

Management has officially cut its full-year production plan by 10 million units after communicating to suppliers that consumers may skip upgrading to hard-to-find phones.

The Dynamics of Demand

Apple's higher-end hardware facilitates software downloads and is classified as Veblen goods due to its pricing category. Veblen goods sell better when their prices increase because they're considered a "status symbol buy" with little income elasticity involved.

However, even Veblen goods can experience declining demand as GDP and disposable income contracts. Although GDP and disposable income spiked in early 2021, it's long been anticipated that economic growth will taper down as soon as expansionary government policies have subsided.

I think Apple was arrogant in this regard and didn't consider economic conditions as determining factors in its demand outlook. The company simply assumed its sales growth would continue to advance due to its market position.

Page Visits

By utilizing TipRanks' new tool that tracks company webpage visits, it's clear that there's been a downward trend in customer interest along with diminishing government stimulus.

The chart shows that although there has been an uptick in page visits between July and September, visits have decreased by almost 16% year-over-year.

Inventory

A helpful way to analyze a company's expectation of future demand is to look at how it's running its inventory.

According to the firm's latest financial statements, inventories have piled up by 62%. Although this could've been due to panic stockpiling amid supply-chain glitches, my bet would still be that Apple expected much higher demand.

To add more substance to the argument is the fact that the company's days of inventory on hand ratio, which currently stands at 11.3, is the highest it's been, signaling poor forecasting.

Valuation

The stock is significantly overvalued. Apple can still be considered a growth company, and it's thus best to look at its price to sales and price to cash flow ratio to analyze the stock price.

Relative to its five-year averages, the company's price-to-sales and price-to-cash-flow ratios are trading at premiums of 51.7% and 55%, respectively. Analysts also aren't expecting an encouraging sales period for Apple, with its three to five-year EPS CAGR projected to be 28.7% lower than its sector peers.

Wall Street's Take

Turning to Wall Street, Apple has a Strong Buy consensus rating, based on 22 Buys, five Holds, and one Sell assigned in the past three months. The average Apple price target of $168.44 implies 4.1% upside potential.

Concluding Thoughts

I'd be throwing caution to the wind if I were an Apple investor. The past two years have provided many tech firms with systemic support causing their stocks to be overpriced.

In addition, it doesn't seem as though the company anticipated the latest drop in iPhone demand, signaling lackluster management and potential complacency.

Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates  Read full disclaimer >