Apple Inc. (AAPL): Apple Stock Beat Earnings, But So What?

Advertisement

This week’s Apple Inc. (NASDAQ:AAPL) stock chart would make any bull swoon, as Apple stock gapped higher on the heels of its most recent earnings release.

Apple Stock: Apple Inc. Beat Earnings, But So What?

Source: via Apple

In one day, shares of AAPL stock gained more than 7%. That represents the best day for Apple stock in almost two years, and leaves the stock right around its 200-day moving average.

Apple stock investors were excited by some better-than-expected numbers for sales, earnings and shipments. And that’s nice. But as I’ve outlined before, I have some serious concerns about Apple. The earnings release investors are applauding actually highlighted them.

My Concerns With Apple Stock

Perhaps the biggest concern with Apple right now is the reality that its staple upgrade cycle is shifting dramatically. This is partially because it’s becoming increasingly difficult, since smartphones have come so far, to make major strides on each edition. And this reality was evident in the fact that Apple’s last “release” was the iPhone 5 SE — basically, a smaller iPhone 6.

In the fiscal third quarter, sales of the iPhone 5 SE were better than expected. But that’s not the great news it may seem like, because this version is also cheaper. Put another way, it speaks to the fact that innovation is lacking, the upgrade cycle has weakened and profit margins are getting squeezed in turn.

This was evident in the cold, hard numbers, which were only applauded because Apple managed to hop over a low bar. Despite the fact that Apple shipped slightly more iPhones than expected during the most recent quarter, it’s important note that revenue from iPhone sales dipped 23% year-over-year precisely because of the shift to this lower-cost phone.

Similarly, despite the fact that earnings and sales beat expectations, both also represented year-over-year drops. In the most recent quarter, Apple reported earnings of $1.42 per share on revenue of $42.2 billion (compared to expectations for $1.38 per share on sales of $42.09 billion). But that earnings beat also represented a 23% year-over-year decline, while overall sales fell 15%. Ouch.

Those numbers, while often buried behind recent headlines, are a reminder that Apple is undergoing a huge transition. Right now, it’s not even low growth — it’s no growth.

That’s fine, I guess — many high-growth tech stocks fit this definition. But it’s important to point out so investors know exactly what they’re buying. This isn’t the Apple stock of yesterday. And as a result, it’s not my cup of tea. I much prefer to bet on true game-changers. And while I also love value buys, the market isn’t quite sure which category Apple fits into.

So, if I’m going to bet on cheap, low-growth stocks with big dividends, I’d rather go with one that isn’t as influenced by sentiment and the herd mentality as this publicity driven tech darling … and one that’s actually posting some growth.

All in all, don’t be fooled by Apple stock headlines. This week’s gap-up is nice, but it hardly changes the real story of Apple’s not-so-hot transition and subsequently squeezed profit margins.

Hilary Kramer is the editor of GameChangersBreakout Stocks Under $10High Octane Trader,Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

More From InvestorPlace


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/apple-stock-earnings-beat-not-innovation/.

©2024 InvestorPlace Media, LLC