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With a YTD gain of just about 19%, Apple (AAPL) is underperforming both the S&P 500 Index ($SPX) and the tech-heavy Nasdaq Composite ($NASX). Wall Street sentiments towards the iPhone maker have been skewed towards the bearish side, which is reflected in its price action. In this article, we’ll analyze why Apple shares have underperformed in 2024, and whether the stock is a buy at these prices.
Why Is Apple Stock Underperforming?
There are multiple reasons why Apple stock is underperforming. These include
- iPhone sales have been tepid: iPhone sales have been tepid, and while the iPhone 16 helped lead a small revival in sales last quarter, the bump is not to the extent that markets once anticipated. The company forecasted “low to mid-single digit” topline growth, even for the current quarter.
- China headwinds: Apple has been losing market share in China, where consumers are increasingly preferring domestic brands, especially Huawei. According to data from Counterpoint Research, Apple’s sales during the recently held Singles Day event fell by double digits, which was worse than the 9% fall in smartphone sales over the period. Huawei fared the best, with a 7% rise in sales volumes.
- Lack of Growth Drivers: Apple currently lacks sizeable growth drivers. While it has increased focus on other Asian markets, like India, to make up for the structural slowdown in China, none of these markets have the potential to fill the big crater left by the deepening slowdown in the world’s second-largest economy. Even from a product perspective, we don’t see any “iPhone-sized opportunity” on the horizon, and going by the reports, its Vision Pro virtual reality (VR) headset has failed to get much traction.
- Trump’s Return to the White House: Donald Trump is set to become the 47th U.S. president, and has vowed to increase tariffs on imports from China. Any increase in tariffs could negatively impact Apple, as the company might not be able to pass on them to the consumers. Also, many Chinese consumers are already pivoting to domestic brands amid rising U.S.-China tensions, and if relations between the world’s two largest economies deteriorate further, things might only worsen.
- Valuation Concerns: Last but definitely not least, Apple’s valuations don’t look cheap by any standards, and at a next 12-month (NTM) price-to-earnings (PE) multiple of nearly 31x, the company does not have much room to err.
AAPL Stock Forecast
Apple has a consensus rating of “Moderate Buy” from the 33 analysts covering the stock. It is the second worst-rated stock among the Magnificent 7, ahead of only Tesla, which has a “Hold” rating. While Tesla (TSLA) has always been a polarizing stock among the analyst community - with some valuing it as an automaker, and others as a tech behemoth, thereby leading to an unusually wide dispersion in its target prices - Apple is a different ballgame, and it is quite rare for analysts to downgrade the stock.
Things have been different in 2024, though, and three brokerages downgraded AAPL stock in January alone. While sentiment started to turn around after the Worldwide Developer Conference (WWDC) in June, where Apple unveiled its AI initiatives, tepid sales of the iPhone 16 have made some analysts apprehensive.
Should You Buy Apple Stock Now or Wait?
While I remain a long-term bull on Apple and will continue to hold my existing shares, I don’t find the current price levels compelling enough to buy the stock. If Trump ratchets up trade tensions with China, we could see selling pressure in names like Apple. It would be worthwhile to remember that AAPL stock fell over 30% in Q4 2018 and lost its trillion-dollar market cap amid the escalating U.S.-China trade war during Trump's first tenure.
This time around, markets are already pricing in some trade tensions with China, and it's no wonder that names like Apple and Nike (NKE) have looked shaky since Trump’s election. Also, according to Morgan Stanley, Apple is the second most under-owned mega-cap stock among institutions, right after Microsoft (MSFT), which the brokerage believes signals a rebound in these shares. Bernstein also listed Apple as its “best idea,” calling it a “quality compounder” that can deliver a topline growth of mid-single digits and bottom-line growth in double digits.
Overall, while there is little denying that with all its headwinds Apple can deliver consistent growth in profits, I would wait for the stock to dip from these levels before jumping in, as the risk-reward does not look too favorable at current price levels.
