Since the start of 2021, the average NASDAQ stock is up over 3%. However, Apple (NASDAQ:AAPL) is down almost 6%. To some investors, it’s a mystery. AAPL stock hasn’t done anything to justify this fall. The company continues to hit on all cylinders. The market for its devices and services remains strong.
But this shouldn’t be a mystery, because, like the other Cloud Czars, Apple was simply overvalued. Even at its Mar. 16 opening price of $125.70, the company has a price-to-earnings (P/E) ratio of nearly 33. The once-generous dividend has been cut by stock splits to about 20 cents per quarter and yields just 0.68%.
A Mature Company
Apple has become a mature company, making it hard to grow at scale. In 2020, revenues were $274 billion. In 2019, they were $260 billion. Growing sales by $14 billion meant growing them just 5%.
There are hints of market saturation. The company no longer reports how many iPhones it sells each quarter. There are reports the company is cutting orders on the iPhone 12 mini because of slow sales.
It’s not a disaster. Apple is still expected to ship 230 million phones this year, up 11.6% from last year. It’s just harder to move the needle.
Apple is also facing bigger threats from governments around the world. Europeans want it to pay more taxes. Its use of tax havens is under assault. Governments see companies like Apple as huge cash cows aching to be milked.
There are also threats to Apple’s app store, which takes 30% of app revenue. Spotify (NASDAQ:SPOT) is specifically targeting its European monopoly. Senator Amy Klobuchar, now chair of the Senate’s antitrust panel, has also targeted the app store.
Targets for Growth
Apple is now looking at ancillary device niches for growth, like its AirPods earbuds. The Apple Watch, which just passed 100 million total sales, is also growing rapidly. Even now, only 10% of iPhone users have one.
Furthermore, by making its own chips, Apple is unifying its device and PC operating systems, making its supply chain more resilient and creating new profit centers. PC growth, which had been lagging, could be further enhanced by compatibility. Despite losing its legal fights with Qualcomm (NASDAQ:QCOM) and watching Intel (NASDAQ:INTC) fail at creating competing products, Apple still plans to make its own modem chips by 2023.
For these reasons, analysts still pound the table for Apple stock, despite its $2.1 trillion market capitalization. Of the 26 analysts following it for Tipranks, 19 have it on their buy lists, with a price target 20% higher than where the stock trades now. The few bears, like Goldman Sachs (NYSE:GS) analyst Rod Hall, are objects of ridicule. But he’s not backing down and, at least through early 2021, he is right.
The Bottom Line on AAPL Stock
The myriad threats to Apple’s profitability are real. Apple is a mature company. It’s hard to grow at scale.
Despite all this I’m keeping my Apple shares. I’ve matured along with the company. I prefer stability to the go-go capital gains of my youth.
There are millions of us. As the Baby Boomers age out, there is going to be more pressure to buy stocks like Apple, which offer stable growth. We all won’t rush in. The shares will slowly build a base of support, with the P/E ratio falling to rational levels. But there’s nothing wrong with the company — just the fashions of the market.
Don’t trade AAPL stock. Invest in it. Pick it up on weakness as it’s weak today, and hold it for the long term.
At the time of publication, Dana Blankenhorn directly owned shares in AAPL.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.