Why Apple Inc. (AAPL) Stock Is Starting to Look Kinda Scary

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Apple stock - Why Apple Inc. (AAPL) Stock Is Starting to Look Kinda Scary

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As seen with my various articles on investorplace.com, I’ve been bullish on Apple Inc. (NASDAQ:AAPL) for some time. Admittedly, the performance has been lackluster this year (Apple stock is up only 10% year-to-date), but there are some short-term catalysts that should give Apple shares a lift.

For example, next year AAPL plans to release the iPhone 8, which should gin up lots of interest. Another key driver is likely to be repatriation.

It seems almost inevitable that Donald Trump will lower the taxes on foreign capital. In other words, AAPL stock should get a boost from getting access to the $215 billion in foreign accounts. The funds will be available for acquisitions, share buybacks and dividends, which should be nice boosters for the Apple stock price.

While all this is great, these are mostly temporary. So what about the long-term for Apple shares? What are the prospects in a couple years from now?

Well, AAPL could face some fundamental problems. Granted, they will not likely be lethal threats, such as with the implosions at companies like BlackBerry Ltd (NASDAQ:BBRY) and Nokia Corp (ADR) (NYSE:NOK).

Yet Apple stock may face long-term low returns.

The Long-Term Problem for Apple Stock

One of the thorny problems is that it is just getting tough to find new areas to grow the revenue base. While a $100 million to $200 million opportunity is great for most companies, it is meaningless for a company at the scale of AAPL. Keep in mind that annual revenues are at a staggering $215 billion. So a 10% increase would translate into $21.5 billion, which is the revenue level of only 132 of the Fortune 500!

However, this problem of “large numbers” is perhaps not the biggest concern for Apple stock. Rather, it seems that the real issue is the dearth of compelling new products and innovations. Let’s face it, what kind of game-changer has APPL released lately? What has been a must-have product?

Not much. Interestingly enough, over the last five years, the only new product has been the Apple Watch. And unfortunately, there hasn’t been much buzz about it. If anything, APPL has not given much of a reason to shell out over $350 for the device.

According to a recent IDC report, the device suffered a “71% plunge … in shipments” during the latest two quarters. Although, AAPL CEO Tim Cook lashed out at this and boasted that sales have been “off the charts.” But what does this really mean?

Apple does not disclose its Watch numbers. Instead, they are part of the “other products” category, which saw a drop of 22% in the September quarter.

Something else to note: The iPhone 7 has been a bit of a yawn. For the most part, the enhancements to the smartphone have been kind of minor. Keep in mind thAt KGI analyst Ming-Chi Kuo believes that sales are already beginning to taper off because of a lack of “spec surprises” for the 4.7-inch model. In Q4, he is forecasting a 5% to 15% drop in shipments for the iPhone.

No doubt, AAPL is not the only one that is having issues with product innovation. What have been the cool offerings from, say, Facebook Inc (NASDAQ:FB) lately? Well, there seems to have been a long dry spell.

Interestingly enough, Snapchat appears to be one of the few tech operators that has ginned up much excitement. It’s new Spectacles, which are fashionable glasses connected to your smartphone and allow you to take photos and videos — appear to be getting lots of traction. They are actually an interesting case of augmented reality.

But with AAPL, what is the company doing with AR? Or artificial intelligence? Or virtual reality? The vision is far from clear.

This is why some Wall Street analysts are getting antsy about Apple stock. Note this from an Oppenheimer research note: “We believe Apple lacks the courage to lead the next generation of innovation (AI, cloud-based services, messaging); instead will become more reliant than ever on the iPhone … We believe Apple is about to embark on a decade-long malaise. The risks to the company have never been greater.”

Bottom Line on AAPL

Again, I’m not implying that Apple stock is a bad investment right now. There are some major catalysts that should move Apple shares. The valuation is also still fairly cheap, with AAPL stock trading at a forward price-to-earnings multiple of 11.5X. By comparison, Microsoft Corporation (NASDAQ:MSFT) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) sport multiples of about 19X or so.

Of course, AAPL has the ability to coast on its massive businesses. But this will not last forever. And if the company does not rev up its innovation efforts — and soon — investors should start to get concerned about Apple stock.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is a registered investment adviser representative (you can visit his site to learn more about his financial planning services). He is also the author of various books on investing like All About Commodities, All About Short Selling and High-Profit IPO Strategies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/12/why-apple-inc-aapl-stock-look-kinda-scary/.

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