Apple stock: the market is finally taking off (NASDAQ: AAPL)


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After a year of warnings, the market finally understands Apple’s valuation issues (NASDAQ: AAPL). Tech giant faces questionable demand scenarios for new iPhone 14 and analysts actually cut EPS estimates previously set up for limited growth anyway. My investment thesis remains bearish on the stock still priced for exceptional growth that won’t happen in this recessionary environment.

Finviz Chart

Source: FinViz

iPhone 14 demand is slowing

Unsurprisingly, market rumors have Apple struggling to match last year’s iPhone unit sales. Bloomberg reports indicate that the tech giant is slowing production to the same target of 90 million units for the iPhone 13, mainly due to a slow start in China where comparable sales are down 11% compared to Last year.

Another issue is the mix change to the Pro builds, which disrupts the original production schedules. Wedbush analyst Dan Ives suggests that 85% of iPhone 14 sales are now Pro models.

As highlighted in previous research, consumer reviews questioned the value of buying the iPhone 14 Plus for $899 while the Pro models only started at $100 more. Some reviewers have encouraged consumers to buy a new or refurbished iPhone 13 Plus instead for a $200 discount due to the lack of a new chip in the base iPhone 14 phones.

The problem with so many consumers switching to the Pro Max model is the lack of original supplies that hinders sales. Apple’s website currently lists the estimated delivery date of the gold iPhone 14 Pro Max which has slipped from mid-October to early November now.

Apple order page


The tech giant is grappling with the problem of sales of the Pro models being pushed beyond the first holiday quarter. Consumers may end up opting for lower-priced iPhones that are more readily available.

Lower estimates

The market appears somewhat shocked by the EPS cut issued by BoA analyst Wamsi Mohan, but the bearish call should be a huge warning to investors. Previously, the analyst had a bullish target of $185 on the stock and cut the price to $160.

Wamsi cut FY23 EPS target to just $5.87 on revenue of $379 billion. Analysts were up at $6.46 per share with FY22 EPS estimates now at $6.10.

The BoA analyst now expects FY23 earnings to deviate from consensus estimates for the year ending here in September. Wamsi sees App Store revenue falling flat with a FY23 revenue target for services at just $85 billion.

Services revenue has been the backbone of Apple’s growth. Even if iPhone sales were flat and Apple could generate an increase in ASP, the company could previously rely on service revenue growth to boost overall revenue beyond any weak iPhone sales. .

The biggest issue has been the sharp uptick in sales in FY21, followed now by recession and currency headwinds. Apple Services grew around 15% in fiscal year 2020 before the huge boost in fiscal year 21 led to a growth spike of 33% in the third quarter of 2021.

Service Growth Chart

Source: sixcolors

Apple has seen services revenue stagnate just below $20 billion in quarterly sales. The BoA analyst has sales hitting $85 billion in FY23 for a minimum growth of up to 5% from current quarterly sales of around $19.5 billion.

Our view has long been that the stock shouldn’t be worth more than $100 to $120. Analysts were only expecting EPS growth of 5% to 6% over the next few years, which would justify no more than a forward P/E multiple of 15x.

EPS estimation table

Source: Alpha Research

Taking the FY23 EPS consensus target of $6.47, the stock would only trade at $97 on 15 times those estimates. The lowered BoA estimate challenges the 15x multiple with earnings expected to fall next year to just $5.87.

On these figures, the market could find it very difficult to justify such a multiple on falling figures. What misleads investors is that analysts choose price targets that do not match actual estimates.

Wamsi reduced the price target by $25 to $160, suggesting a more than 10% upside from the initial trade at $143. Analysts are known to maintain price targets based on where the security is currently trading, not where the analysis would lead to a logical conclusion.

Apple unlikely to drop below $100 as investors expect rebound in FY24 numbers combined with ‘hope’ new AR/VR device will boost sales and usher in new product category promising. The Apple Car could become a more legitimate story by the end of next year to support the stock. Either way, Apple is likely to be flat for years, with analysts’ current EPS targets still estimating stock trades at 20x FY25 EPS targets.


The main takeaway from investors is that the market and the analyst community finally understand that Apple is facing a tough few years with tough comps. The stock is now facing legitimate concerns from the tech giant reporting a year of reported sales and EPS falling year-on-year.

Investors should not fall into the trap of buying the lows just because the stock is already trading down $40 from the highs or the promise of a $160 price target. Apple can’t justify a price above $120, let alone $100.


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