The tech behemoth Apple Inc. (AAPL) gained 13.2% over the past month and 46.5% year-to-date, closing the last trading session at $190.40. However, the company revealed its fourth consecutive quarter of declining revenue for the most recently reported quarter and cautioned investors expecting growth for the current quarter.

Let us understand this in detail…

In its latest fiscal fourth-quarter earnings report, AAPL surpassed analyst predictions for sales and earnings per share. Despite this success, the sales marked a fourth consecutive quarterly decline. Every hardware segment, excluding the iPhone, exhibited a year-over-year contraction.

Despite beating analyst estimates in its fiscal 2023 fourth quarter, AAPL has cautioned investors against anticipating revenue growth in the December quarter, traditionally its peak period.

CEO Tim Cook acknowledged the superior early performance of the iPhone 15 compared to the iPhone 14. Nonetheless, revenue declined about 1% from the previous year to $89.50 billion, marking the fourth consecutive quarter of contraction. This represents the first such prolonged decline for AAPL since the period preceding the launch of the iPhone in 2007.

Moreover, the company, known for consistently holding one of the largest cash reserves in the United States, currently possesses $162.1 billion in cash. This marks a decrease from its fiscal third quarter of 2023, where it reported cash of $166.5 billion, and its fiscal second quarter in 2023, where it had approximately $166.3 billion in cash.

In addition, AAPL has proposed to Goldman Sachs (GS) to conclude their credit card and savings account partnership within the next 12 to 15 months. If implemented, this move would terminate one of the most prominent partnerships between a bank and a technology company, signifying a notable shift in collaboration dynamics.

This implies that AAPL would need to seek an alternative financial partner for its Apple Card and high-yield savings accounts bearing the Apple brand. The partnership has already encountered challenges recently, attributed to GS, led by CEO David Solomon, scaling back its earlier consumer banking aspirations due to escalating costs.

Here are the financial aspects of AAPL that could influence its performance in the near term:

Mixed Financials

For the fiscal 2023 fourth quarter that ended September 30, 2023, AAPL’s net sales marginally decreased year-over-year to $89.50 billion. However, its gross margin increased 6.1% from the year-ago value to $40.43 billion. In addition, the company’s net income and earnings per share rose 10.8% and 13.2% from the prior year’s period to $22.96 billion and $1.46, respectively.

Sound Historical Growth

Over the past three years, AAPL’s revenue and EBITDA increased at 11.8% and 17.6% CAGR, respectively. Its net income and EPS grew at 19.1% and 23.2% CAGR, respectively. In addition, the company's total assets and levered free cash flow rose at respective CAGRs of 2.9% and 10.8%.

Positive Analyst Estimates

The consensus revenue estimate of $396.88 billion for the fiscal year ending September 2024 reflects a 3.6% year-over-year improvement. Likewise, the consensus EPS estimate of $6.56 for the ongoing year indicates a 7% rise from the previous year. Moreover, the company surpassed the consensus EPS estimates in three of the four trailing quarters.

Stretched Valuation

In terms of forward non-GAAP P/E, AAPL is trading at 28.95x, 28% higher than the industry average of 22.61x. Also, its forward EV/Sales of 7.34x is 178.1% higher than the 2.64x industry average. Furthermore, AAPL’s forward EV/EBITDA of 22.11x is 51.4% higher than the 14.60x industry average.

Robust Profitability

AAPL’s trailing-12-month EBITDA margin of 32.83% is 262.1% higher than the industry average of 9.07%. Its trailing-12-month levered FCF margin of 21.44% is 164.1% higher than the 8.12% industry average. Also, the stock’s trailing-12-month net income margin of 25.31% compares to the 1.77% industry average.

Furthermore, AAPL’s trailing-12-month CAPEX/Sales of 2.86% is 22.5% higher than the 2.33% industry average. In addition, its trailing-12-month ROCE, ROTC and ROTA of 171.95%, 38.70%, and 27.51% compare to the industry averages of 0.80%, 2.60% and 0.07%, respectively.

POWR Ratings

AAPL’s outlook is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has an A grade for Quality, which syncs with its higher-than-industry profitability. However, the stock has a C grade for Stability, consistent with its 24-month beta of 1.23.

In addition, the stock has a D grade for Value, justified by its higher-than-industry valuation.

AAPL is ranked #22 in the 37-stock B-rated Technology - Hardware industry. Click here to access AAPL’s Growth, Momentum, and Sentiment ratings.

Bottom Line

Declining sales, consecutive quarterly contractions, and the looming termination of the GS partnership collectively point to uncertainties and challenges in AAPL's growth trajectory.

Additionally, the company's stretched valuation and relative instability further underscore the need for caution. In light of these considerations, it could be wise to await a more opportune entry point into AAPL.

How Does Apple Inc. (AAPL) Stack Up Against Its Peers?

While AAPL has an overall grade of C, equating to a Neutral rating, you may check out these A-rated stocks within the Technology - Hardware industry: HP Inc. (HPQ), Vtech Holdings Limited (VTKLY) and Daktronics, Inc. (DAKT). To explore more A-rated Technology – Hardware stocks, click here.

What To Do Next?

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AAPL shares fell $0.05 (-0.03%) in premarket trading Wednesday. Year-to-date, AAPL has gained 47.36%, versus a 20.28% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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