iPhone maker Apple Inc. (AAPL) shares have declined 11.7% year-to-date. Investor sentiments have been hit due to concerns over softer demand in China, falling sales, and increased competition. AAPL’s earnings and revenue for the second quarter are also expected to miss the consensus estimates.

In this piece, I have discussed why it could be wise to wait for a better entry point in the stock.

The Cupertino-based giant has faced several challenges of late, including slowing demand in one of its biggest markets, China. According to a Bloomberg report, AAPL’s iPhone shipments in China fell by about 33% in February 2024 compared to last year. In China, it is facing stiff competition from domestic brands like Huawei and Xiaomi. AAPL is also struggling due to a slowdown in smartphone demand worldwide.

The company is also subject to an antitrust lawsuit filed by the US Justice Department. The lawsuit alleges that the iPhone maker illegally exercises its monopoly over smartphones, kicking out competitors, smothering innovation, and imposing extraordinary costs on developers, businesses, and consumers.

Loop Capital analyst Ananda Baruah reiterated his “hold” rating on the stock but cut his price target to $170 from $185. Amidst the gloom, investors would be looking forward to seeing the kind of innovation AAPL brings in generative AI. CEO Tim Cook said the company is investing significantly in AI and will break new ground in generative AI later this year.

Here’s what could influence AAPL’s performance in the upcoming months:

Robust Financials

AAPL’s total net sales for the fiscal first quarter ended December 30, 2023, increased 2.1% year-over-year to $119.58 billion. Its gross margin rose 9% over the prior-year quarter to $54.86 billion. The company’s net income increased 13.1% year-over-year to $33.92 billion. In addition, its EPS came in at $2.18, representing an increase of 16% year-over-year. Also, its cash generated by operating activities rose 17.3% year-over-year to $39.90 billion.

Mixed Analyst Estimates

Analysts expect AAPL’s EPS and revenue for fiscal 2024 to increase 7.2% and 1.3% year-over-year to $6.57 and $388.32 billion, respectively. Its EPS and revenue for fiscal 2025 are expected to increase 9% and 6.2% year-over-year to $7.16 and $412.54 billion, respectively.

Its EPS and revenue for the quarter ended March 31, 2024, are expected to decline 0.7% and 4.1% year-over-year to $1.51 and $90.98 billion, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, AAPL’s 25.89x is 3.1% higher than the 25.10x industry average. Its 2.75x forward non-GAAP PEG is 42.1% higher than the 1.94x industry average. Likewise, its 19.38x forward EV/EBITDA is 29.5% higher than the 14.97x industry average.

Mixed Profitability

In terms of the trailing-12-month EBITDA margin, AAPL’s 33.73% is 258.4% higher than the 9.41% industry average. Likewise, its 1.10x trailing-12-month asset turnover ratio is 79.3% higher than the industry average of 0.61x. Furthermore, its 154.27% trailing-12-month Return on Common Equity is significantly higher than the industry average of 3.10%.

On the other hand, its 45.03% trailing-12-month gross profit margin is 6.8% lower than the 48.29% industry average.

POWR Ratings Reflect Uncertainty

AAPL has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AAPL has a C grade for Stability, consistent with its 1.29 beta.

It has a C grade for Sentiment, in sync with its mixed analyst estimates. Its stretched valuation justifies its D grade for Value.

AAPL is ranked #23 out of 39 stocks in the Technology – Hardware industry. Click here to access AAPL’s Growth, Momentum, and Quality ratings.

Bottom Line

Investors have been concerned about AAPL’s growth prospects due to the choppy smartphone market. Moreover, it is facing increased competition in its third biggest market, China. Despite these challenges, AAPL launched its first new product in seven years, the Vision Pro, a mixed-reality headset. This is expected to be a new growth driver for the company.

Furthermore, the company is actively embracing the generative AI trend and making significant investments in the space. AAPL’s foray into AI is expected to launch this year.

Given its mixed analyst estimates and stability, it could be wise to wait for a better entry point in the stock.

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

AAPL has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Technology – Hardware industry: Lantronix, Inc. (LTRX), AstroNova, Inc. (ALOT), and Logitech International S.A. (LOGI). For exploring more Buy-rated Technology - Hardware stocks, click here.

What To Do Next?

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AAPL shares fell $0.34 (-0.20%) in premarket trading Tuesday. Year-to-date, AAPL has declined -11.57%, versus a 10.20% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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