Apple: Dropping Profit Margin May Hurt Stock (NASDAQ:AAPL)

Shahid Jamil

Introduction

Apple is the largest company in the world, with a $2 trillion-plus market cap. They participate in the hardware phone industry, computer, and other related services. Apple’s global market share has been stable over the years against Asian competitors. Apple’s premium pricing also makes their hardware the most expensive in the industry. Will it maintain its profit margin with high inflation and dropping global demand?

Fundament shows market cap strength but drops profit margin

Ratios

The current and quick ratios over the last five years have been dropping, which is quite surprising for a company like Apple based on its size.

Unnamed: 0

2018

2019

2020

2021

2022

Period

FY

FY

FY

FY

FY

Current ratio

1,124

1,540

1,364

1.075

0.879

quick ratio

0.987

1,384

1.218

0.910

0.709

cash ratio

0.222

0.462

0.361

0.278

0.154

Source: Financial Modeling Prep

growth

Revenue growth and gross profit have been mixed over the last five years. Only net income growth was strong for Apple in 2021. This should be a big concern for long-term Apple investors. Is this due to a slowdown in iPhone sales? Or are they too expensive for most people in this highly inflationary world?

Unnamed: 0

2018

2019

2020

2021

2022

Period

FY

FY

FY

FY

FY

Revenue growth

0.159

-0.020

0.055

0.333

0.078

Gross profit growth

0.155

-0.034

0.067

0.456

0.117

Ebit growth

0.156

-0.098

0.037

0.644

0.096

Operating income growth

0.156

-0.098

0.037

0.644

0.096

Net income growth

0.231

-0.072

0.039

0.649

0.054

Eps growth

0.296

-0.003

0.106

0.713

0.085

Source: Financial Modeling Prep

Enterprise Value

The share price nearly doubled between 2019 and 2021. Also, the stock price growth has almost risen 50% since then. Market capitalization has more than doubled over the last five years, showing excessive growth. The question of concern is the profitability of Apple in general over the years.

Unnamed: 0

2018

2019

2020

2021

2022

Symbol

AAPL

AAPL

AAPL

AAPL

AAPL

Stock price

53,060

62.263

115.050

148.640

149,450

Number of shares

19,822 B

18,471 B

17,352 B

16,701 B

16,216 B

Market capitalization

1.052 T

1,150 T

1996 T

2,482 T

2,423 T

Add total debt

114,483 B

108,047 B

112,436 B

124,719 B

120,069 B

Minus cash and cash equivalents

25,913 B

48,844 B

38,016 B

34,940 B

23,646 B

Enterprise value

1,140 T

1,209 T

2.071 T

2,572 T

2,520 T

Source: Financial Modeling Prep

Estimates

Regarding forward guiding estimates, revenues will remain strong over the next six years. Dividend growth is expected to remain flat, but how will it affect the long-term stock price of Apple? EBITDA will continue to strengthen over the next six years. The concerning question about Apple is profitability and its impact on its stock price. Seeing such growth from a $2+ trillion market cap is impressive, but is it sustainable?

YEARLY ESTIMATES

2022

2023

2024

2025

2026

2027

Revenue

392.777

407.094

430.401

448,581

502.151

565,588

Dividend

0.91

0.99

1.05

1.15

1.03

1.06

Dividend Yield (in %)

0.66%

0.72 %

0.76 %

0.84%

0.75 %

0.77 %

EPS

6.10

6.25

6.83

7.11

7.96

8.20

P/E Ratio

22.52

21.98

20.10

19.30

17.25

16.74

EBIT

119,031

118.745

125,307

129,182

144,326

EBITDA

130.905

130.761

137.379

142.184

158.798

175,329

Source: BusinessInsider

Technical Analysis Show Now Strong Current Momentum

Fibonaccia

The Fibonacci trendline peaked roughly last year while Apple stock price was in rangebound. Apple has not collapsed in stock price compared to other big tech companies, which shows how well the product line has been tightly managed.

fibonacci apple

fibonacci apple (custom platform)

Bollinger Bands

There is only a little to say here about Bollinger Bands other than that Apple’s stock price appears to be pushing toward the upper band. This could easily hint towards a potential short-term increase in Apple’s share price.

bollinger apple

bollinger apple (custom platform)

MACD

MACD line shows that the compressed stock price of Apple has been rangebound between $100 and $150. Will the momentum return to the share price of Apple?

With the most recent activity on the zero line, you can easily see that price declined as momentum was not strong enough to sustain a stock price increase.

macd apple

macd apple (custom platform)

RSI

Like the MACD chart, the RSI has had similar moves, whereas the share price is currently approaching oversold. If momentum returns to the USA market indices, one can expect Apple stock price should continue to build. When you compare other technology companies, Apple has somewhat underperformed to certain ones but, as said, has not collapsed in stock price.

rsi apple

rsi apple (custom platform)

Prediction via AI

Monte Carlo

This Monte Carlo simulation does show a potential 30% return in price with a higher probability of predicted paths. On the other hand, in the normalized distribution chart, there is a higher likelihood of stock price expectation with a potential 20% (on average) increase.

monte carlo apple

monte carlo apple (custom platform)

Regression

With regression analysis, the red line over the next 30 days shows that Apple stock price may stay rangebound during this period.

regression apple

regression apple (custom platform)

Risk shows clear uncertainty

price vs. Short Volume

There appears to be no shorting concern as it is below 50% of the total trading volume. This has historically been the same since the summer of this year.

shorting apple

shorting apple (custom platform)

Source: StockGrid

Insider

Insider Stats

As Apple executives continue to sell the stock, this only confirms that stock prices may continue to fall as global markets weaken. This is another way of saying that global demand for Apple products is either overpriced or just dropping in this rising inflation world.

Unnamed: 0

X

Filing Date

Trading Date

ticker

Insider

Title

Trade Type

price

Quantity

Owned

Delta Own

Value

0

nan

2022-11-01 18:30:34

2022-10-28

APPL

Maestri Luca

SVP, CFO

S – Sale

$155.95

-176.299

110,673

-61%

-$27,493,275

1

d

2022-10-18 18:33:15

2022-10-17

APPL

O’Brien Deirdre

please

S – Sale+OE

$142.45

-8.053

136,290

-6%

-$1,147,150

2

d

2022-10-04 22:05:07

2022-10-03

APPL

O’Brien Deirdre

please

S – Sale+OE

$142.16

-176.299

136,290

-56%

-$25,062,882

3

d

2022-10-04 22:02:25

2022-10-03

APPL

Adams Katherine L.

SVP, GC, Secretary

S – Sale+OE

$141.41

-181.139

427.334

-30%

-$25,615,117

4

a

2022-08-22 18:43:18

2022-08-17

APPL

Maestri Luca

SVP, CFO

S – Sale

$174.96

-96.735

110,673

-47%

-$16,924,259

5

nan

2022-08-19 18:30:27

2022-08-17

APPL

Maestri Luca

SVP, CFO

S – Sale

$174.96

-96.735

110,673

-47%

-$16,924,259

6

nan

2022-08-05 18:30:49

2022-08-03

APPL

Adams Katherine L.

SVP, GC, Secretary

S – Sale

$164.77

-25,000

427.334

-6%

-$4,119,155

Source: Open Insider

Insider Activity

Date

Shares Traded

Shares Hero

price

Type

option

Insider

trade

2022-09-30

365,600.00

476,273.00

nan

Buy

no

Maestri Luca

365600.0

2022-09-30

365,600.00

501,890.00

nan

Buy

no

Maestri Luca

365600.0

2022-09-30

177,870.00

677,392.00

138.2

Sell

no

Maestri Luca

-177870.0

2022-09-30

189,301.00

286,972.00

138.2

Sell

no

Maestri Luca

-189301.0

2022-09-30

184,461.00

608,473.00

138.2

Sell

no

O’BRIEN DEIRDRE

-184461.0

2022-09-30

189,301.00

312,589.00

138.2

Sell

no

O’BRIEN DEIRDRE

-189301.0

2022-09-30

365,600.00

792,934.00

nan

Buy

no

KONDO CHRIS

365600.0

2022-10-02

5,400.00

603,073.00

138.44

Sell

no

O’BRIEN DEIRDRE

-5400.0

2022-10-02

13,199.00

589,874.00

139.15

Sell

no

KONDO CHRIS

-13199.0

2022-10-02

27,669.00

562,205.00

140.34

Sell

no

O’BRIEN DEIRDRE

-27669.0

2022-10-02

56,271.00

505,934.00

141.19

Sell

no

O’BRIEN DEIRDRE

-56271.0

2022-10-02

65,350.00

440,584.00

142.45

Sell

no

O’BRIEN DEIRDRE

-65350.0

2022-10-02

13,250.00

427,334.00

142.93

Sell

no

Adams Katherine L.

-13250.0

2022-10-02

66,880.00

203,316.00

142.17

Sell

no

Adams Katherine L.

-66880.0

2022-10-02

67.026.00

136,290.00

142.83

Sell

no

Adams Katherine L.

-67026.0

2022-10-02

42,393.00

270,196.00

141.09

Sell

no

Adams Katherine L.

-42393.0

2022-10-14

13,136.00

58,104.00

nan

Buy

no

Adams Katherine L.

13136.0

2022-10-14

16,612.00

152,902.00

nan

Buy

no

Adams Katherine L.

16612.0

2022-10-14

6.399.00

51,705.00

138.38

Sell

no

O’BRIEN DEIRDRE

-6399.0

2022-10-14

8,559.00

144,343.00

138.38

Sell

no

Adams Katherine L.

-8559.0

2022-10-16

8,053.00

136,290.00

142.45

Sell

no

Maestri Luca

-8053.0

2022-10-27

14,274.00

272,698.00

154.7

Sell

no

WILLIAMS JEFFREY E

-14274.0

2022-10-27

85,147.00

187.551.00

155.63

Sell

no

O’BRIEN DEIRDRE

-85147.0

2022-10-27

69,678.00

117,873.00

156.46

Sell

no

Adams Katherine L.

-69678.0

2022-10-27

7,200.00

110,673.00

157.2

Sell

no

Maestri Luca

-7200.0

Source: BusinessInsider

Recommendations

Recommendations show that most analysts indicate neutral calls, which I agree with. There seems to be no collapse in Apple’s share price, but again, if markets rise, Apple may underperform in the short run. This should improve once inflation dies off, when people will begin to buy overpriced Apple products again.

Interval

RECOMMENDATION

BUY

SELL

NEUTRAL

one month

SELL

5

13

8

one week

NEUTRAL

9

7

10

one day

NEUTRAL

9

8

9

Source: Trading View

conclusion

Apple has been a reasonably impressive stock performer over the years; it is also remarkable how this company can maintain its market cap. As shown in the fundamentals, there should be concerns about profitability dropping with a lower margin. Despite the company’s growth over the next five to six years, investors should ask themselves how this will impact their long-term profitability and Apple share price. Will there be a better hardware manufacturer for both phones and computers that will continue to eat into Apple’s market share? Or will they be a general commoditization of the industries Apple is currently involved with? There is also an understanding of how Apple is diversifying into other product lines of health through its services division and a new car to compete in the automobile industry. If this happens, Apple will continue to grow with diversified new product revenue. As for now, Apple should remain on hold but will return to a buy once inflation and weak global demand pass.

Author: admin

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