AAPL Earnings Could Break The Market
Obviously the most important event on tap Thursday is Apple (AAPL) earnings after the close. While the stock is off more than 10% YTD, it is still quite overvalued given the lack of growth IMO. In his piece on AAPL in Tuesday’s WSJ tech columnist Dan Gallagher suggested that since AAPL has come down from 30x forward earnings to 25x the bar for the current quarter has been lowered. Agreed; but it hasn’t been lowered enough.
According to Gallagher, iPhone sales are expected to decline 10% compared to a year ago. In fact, revenue from all of AAPL’s devices are expected to decline compared to a year ago. Only the Services segment is expected to log an increase – of 11% (Dan Gallagher, “Apple Might Be Able To Phone It In Now” [SUBSCRIPTION REQUIRED], WSJ Tuesday 4/30).
I fail to see why 25x is the right multiple for a company that hasn’t had a double digit increase in revenue in a quarter in more than two years. I think 20x is more appropriate for a company whose core product is mature and should now be viewed as a value rather than a growth stock. I put AAPL’s intrinsic value at $120 (AAPL earned $6.13/share in FY23 and $6.11 in FY22). It’s only a matter of time before the stock is revalued this way IMO. Perhaps it starts today….
Disclosure: Top Gun is short shares of AAPL.