It’s not exactly a groundbreaking statement to say that Apple Inc. (NASDAQ:AAPL) is simply a stunner. Apple’s revolutionary products, under the guide of visionary Steve Jobs, have upended music, PC and mobile communications industries. So AAPL stock soared to unimaginable heights. But as we know from every other moment in market history, nothing can deny gravity forever.
That’s why I wasn’t surprised to see many of my InvestorPlace colleagues at least forward cautionary sentiments. True, this goes against the mainstream consensus, but even that is changing.
Four of the most recent analyst recommendations were downgrades. More importantly, soaring valuations without a respite is not healthy any publicly traded company.
An underappreciated argument was forwarded by InvestorPlace contributor Chris Lau, who noted that Samsung Electronics (OTCMKTS:SSNLF) figured out the source of their exploding Galaxy 7 problem, and has quietly pressed onward. He then shrewdly notes that the Galaxy S8 and S8+ could be a thorn on the side for Apple stock.
That initially sounds counterintuitive. Samsung was mired in a public relations nightmare that will take time to heal. And while it was putting out internal fires, Apple Inc. reported another iPhone sales decline for its second quarter. The problem was that Apple’s iPhone sales slipped slightly on a year-over-year basis. With a potentially resurgent Samsung, that performance could get worse in the near future.
AAPL Stock Going Solo
The modest iPhone sales growth in the current smartphone market is more than just a passing statistic. As InvestorPlace’s Lawrence Meyers states,”I’m not crazy about the fact that this still accounts for about 60% of AAPL stock revenues, but we are seeing Apple start to pick up revenue in other segments, and it’s less than the 70% of a couple of years ago.”
It’s encouraging that management is aware of the sales allocation issue and is doing something about it. Still, investors — particularly those considering jumping on Apple stock now — should pay closer attention to the details.
During the “meat” of iPhone revenue growth — roughly between 2009 through 2014 — sales volume and the AAPL stock price shared a 83% correlation. That is, as more people bought iPhones, more investors bought Apple shares.
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On the face of it, that’s not necessarily good or bad. However, I think it’s worrying when you consider the bigger picture.
No analyst would question that iPhone sales overall have slowed against prior results. Yet Apple stock has not slowed — shares are up nearly 33% year-to-date. At some point, something’s gotta give, especially since the iPhone remains Apple’s chief moneymaker.
Going back to Mr. Lau’s point, Samsung could take advantage of the lull and do some damage.
All Signs Point to a Correction
The technical charts also confirm the cautious approach wisdom. On a long term, quarterly scale, AAPL stock is right at the top of a bullish trend channel. My argument is not that the channel will break. Rather, it’s that Apple stock is due for its regularly scheduled correction.
As mentioned earlier, every surging company has to correct to maintain healthy market dynamics. Apple has seen its fair share of corrections over the past ten years. Most recently, the consumer tech giant experienced pronounced volatility in 2012 and 2015. Thus, we shouldn’t be surprised to go through another bearish cycle in the next few months.
The good news is that this is par for the course. Apple has come across another challenge, and I expect it to overcome. AAPL stock has more than proved how resilient it is, and I believe that the overall trend channel is secure.
However, those that want to take a bite out of Apple stock now should wait. The nearer-term competitive picture is cloudy, thanks to Samsung.
Even minnow competitors like Sony Corp (ADR) (NYSE:SNE) could make things interesting. Although it’s been the butt of jokes, a 25% YTD performance is no laughing matter. Finally, the technical patterns are all but screaming for a temporary correction in AAPL.
As of this writing, Josh Enomoto is long SNE stock.
