Apple Is Overvalued
As widely reported, Apple (APPL) has executed well this quarter despite the ongoing trade war. The trillion-dollar company has exceeded market expectations despite suffering global slowdown in its iPhone sales business, and Wall Street is asking the market for more love for the $249 wireless earpiece maker as a result.
Apple recently ended its fiscal year in September. The Cupertino, California-based smartphone maker reported a 2% decline in overall sales in the past 12 months and a 7% drop in profits, yet its stock price rose to near near its all-time highs--about $250 a share--as it has beaten earnings expectations again. Some analysts have raised their price targets to even as high as $325 to $365 a day after earnings results.
Owning at least 12% of the world's smartphone sales as of recent data, Apple certainly did not escape the global slowdown in the industry. Apple experienced a 14% drop in this year's iPhone revenue compared to last year as the phone business contributed 55% in Apple's total revenue of $260 billion for its fiscal year that just ended.
In addition, Apple's guidance for its next quarter fell in line with analyst estimates, therefore gaining more likes from Wall Street. The company's next quarter revenue guidance of $85.5 billion to $89.5 billion presents a chance for it to beat its record in the same quarter back in 2017.
Having generated strong wearables and services business results further strengthen bullish calls on the iPhone maker. In this fiscal year, Apple reported a 41% rise in its Wearables business and a16% increase in Services. Both segments contributed nearly 30% in overall sales for the company.
Nonetheless, it appears that dark clouds have dissipated as market expectations are the only thing that matters. At this time, the $22.5 billion drop in iPhone revenue year over year is somewhat placed on the side while a $13.6 billion increase in Wearables and Services revenues are being cheered for.
The iPhone company now trades at 21.6 times trailing earnings--about 20% higher than its five year average of 16 times. At these price levels, Apple's stock has to fall to $180 a share--or experience a 30% drop--for it to trade at average earnings multiple in the past five years.
Disclosure: Long Apple
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This article first appeared on GuruFocus.
