Following the sharp declines in the U.S. indices on Dec. 4, many investors were once again left wondering whether Apple’s (NASDAQ:AAPL) current stock price offers a good entry point. However, I would urge investors to not commit all their intended capital to AAPL stock in early December yet.
Here is why it is still too soon to invest in Apple.
When Will AAPL Stock See $1 Trillion Market Cap Again?
Since becoming first U.S. company with a market cap of over $1 trillion in early August, Apple stock has fallen from an all-time high of $233.47 on Oct. 3 to $174.72, as of the Dec. 6 close. Investors’ mood change since the end of the summer months not only around AAPL but also regarding most technology stocks has been rather stark as fear and uncertainty have replaced jubilation.
The relief rally following a possible trade wars “truce” ended when havoc rattled the markets on Tuesday, and analysts began voicing their concerns about the fundamental issues behind Apple’s shrinking margins as well as the slowing demand for its products, especially in China — a maturing market where smartphone competition is fierce.
The decline in sales numbers of Apple’s component suppliers are also a concern for upcoming numbers from AAPL stock: with flat sales numbers, shrinking profit margins and increasing operating costs, the company may not stay as the powerhouse that reached a $1 trillion market cap.
Apple has recently been decreasing orders of screens, chips and other parts. Although the company is working to increase revenues from software — such as streaming music subscriptions or app downloads — most analysts regard the iPhone sales are the critical gauge of Apple’s financial performance.
How Would a December Federal Reserve Rate Hike Affect Apple?
Wall Street is still debating if there will be another interest rate increase in December. In the case of another hike, Apple stock price is likely to suffer further as increasing rates would strengthen the U.S. dollar further and hurt AAPL’s bottom line.
The company’s SEC filing clearly identifies the negative impact of foreign currency fluctuations as well as tariffs on AAPL earnings. Almost half of Apple’s sales come from Pacific Rim countries as well as Europe, the Middle East, and Africa and the weakening of foreign currencies would translate into lower earnings for Apple.
Are Investors Becoming Concerned with Apple Share Repurchases?
Apple’s reach to a trillion dollars was partly paved with iPhones and iPads, as well as Macs. It was also helped by a record number of stock buybacks by the company. When Apple — or any other company — buys back its own stock, the supply of shares drops and the stock price rises. Following the recent corporate tax cuts, Apple pledged a massive $100 billion of stock buybacks.
As the margins have decreased on Apple’s technology products, stock buybacks have been an essential driver of the share price. However many analysts would like to see Apple invest its over $250 billion cash — most of which is overseas — in ways or in companies that would generate further cash flow.
Unless Apple can show Wall Street that it still has the vision to allocate the cash at hand towards a profitable goal, investors may choose to stay on the sidelines.
So Is It Time to Invest in Apple Stock?
The answer depends on your evaluation of the fundamentals of the Apple as well as the noise surrounding interest rate hikes and the impact of China — the tariff wars and the slowing appetite for Apple products.
After investors’ harsh response recently, AAPL stock has also suffered from a damaging technical picture. Both the short-term and the long-term technical charts look weak, pointing to the possibility for more downside around the corner. Amidst the current macro environment global factors and fierce smartphone competition, Apple stock may not go back up to the $1 trillion market cap any time soon.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.