Apple stock: Not yet washed (NASDAQ: AAPL)
After several warnings, apple (Nasdaq: AAPL) Finally you see the market stumbled by the opportunity to invest in the slow-growing technology company. The tech giant got an artificial boost from pulling Covid forward and it’s very important for investors to do so Understand that new hardware is not a stock savior. for me investment thesis Still bearish on Apple until the stock is completely washed out and isn’t valued for solid growth anymore.
Back on May 19, Apple apparently showed its new mixed reality headset to the board of directors. Such a step is usually one of the last steps towards launching a product, although this step is not foolproof.
The stock was affected by market weakness that day, but Apple bounced back on May 23 to trade above $143. The stock is far from yearly highs, but Apple is only buoyed at that level, if a new AR or VR hardware drives sales materially higher.
Star Apple analyst Katie Huberty cut the price target for the stock to $195, down from $210, due to tough economic conditions. Morgan Stanley (MS) analyst lowered its June quarter revenue forecast by 3% to $81.1 billion and based the target price on the price multiplier to 30.3 times the fiscal year 23 estimate of $6.43.
These numbers were from two weeks before some recent and ongoing market weakness Corona virus disease closures in China. Current analyst revenue estimates for FQ3’22 are $82.8 billion for just 1.7% growth. The estimate from Katy Huberty is for only negligible growth in the current quarter.
A lot of investors are blowing about these weak growth rates due to some excitement about a new mixed reality device and a future smart glass AR device likely to be introduced by 2024. While there is a lot of excitement about these devices, Apple is not expected to generate much revenue from these devices. Hardware compared to the current revenue base.
Given that Katy Huberty has already estimated that the device will generate minimal revenue in the early years. It forecasts fiscal year 26 AR/VR product revenue to reach $29 billion based on the tech giant shipping 31 million units at an average price of $750. Analyst Ming-Chi Kuo forecast 2023 sales of 3 million units with a second-generation device approaching 10 million units in 2024. Of course, those numbers were before recent product delays likely pushed initial sales into early 2023.
As discussed in previous research, it took the Apple Watch about 4 to 5 years to increase sales to meaningful unit sale levels. The company didn’t reach 31 million units until the fifth year after its launch in 2019 as it sold 8.2 million units that year and may have been boosted by Covid.
Katy Huberty compared expectations for AR/VR devices closest to the iPad, however the demand for this device was much higher due to productivity improvements over iPhone use. iPad sales immediately started at 32.3 million units in 2011 and sales quickly reached over $30 billion by year 2. Additionally, the average unit price was only $329 in 2012.
Katy Huberty is using an average AR/VR unit price of $750 by 2026, but a lot of data points indicate much higher prices for the initial hardware. The Meta Platforms Oculus Quest Pro, identical to the Apple device that will be released, costs about $799. These companies will likely have a hard time selling mixed reality headsets at these price points.
Apple hasn’t released a new device that costs nearly $1,000. Investors need to be very careful with the hype from this mixed reality product and the stocks won’t be completely washed out until the hype is gone.
Katy Huberty has a price target of $195 per share based on a target of 30 times EPS forward estimates of $6.43. The average analyst has a similar view with price targets of $188.
The stock won’t be washed out until some prominent analysts cut their price targets on Apple to below their 20x EPS target. Recent price cuts in Snap Inc. (SNAP) and roblox game (RBLX) Highlight washout events required for these stocks.
KeyBanc Capital Markets analyst Justin Patterson cut the price target on Snap to $27 from $45 while Benchmark lowered the target by 50% to just $20. The stock reached a 52-week high above $83.
Roblox saw its target price drop to the current price by an analyst at Atlantic. The analyst cut the target to $30 from $60 per share that peaked above $140 at the end of 2021 using a Covid pull forward.
The wash event hasn’t shown up on Apple soon yet. The last 4 repeat analysts had price targets of $200, $200, $185 and $210, respectively.
Apple is trading at the lowest multiple of the stock futures in the past year, but investors need to question why the $140 stock is worth up to valuation of nearly 23 times EPS futures estimates. At best, Apple is fairly undervalued, but remember that the average analyst expects a 35% rise in the stock from here.
Apple does not have volatile growth rates for the other technology names discussed in the article, so the stock does not need the same survey event. Snap fell 43% yesterday amid signs of slowing advertiser demand on the social media platform, but Apple still has to keep trading in line with growth rates.
Analysts don’t expect EPS growth of more than 6% after fiscal year 22. If the stock traded at just 15 times the share, which is solid for those growth rates, Apple would be worth just $98 based on EPS estimates of $6.54 for the fiscal year. 23. In the current environment, the risk lies in downgrading the EPS.
Apple is certainly a premium company that deserves an excellent rating, but investors need to understand that $120 is such a premium rating. The stock won’t wash out until it drops to these levels and some influential analysts drop price targets dramatically.
The main investor takeaway is that Apple is not on the verge of collapse. Not a single analyst gave up on the stock, yet Apple’s prices are down more than $40 from already highs. Until the stock drops to a more reasonable valuation of $120 or less and analysts begin lowering price targets to match the limited growth outlook, investors should avoid the stock. Apple still has a lot of hype in the stock.