Wall Street is increasingly worried over Apple’s valuation and its recent share price decline.
Apple shares fell as much as 4 percent Monday morning, on track for a second-straight day of losses due to mounting concerns about unsustainably high stock prices. The iPhone maker has now lost 7 percent of its value in just two days.
The decline Monday came after Mizuho downgraded the stock to neutral from buy and lowered its price target to $150 from $160. “We believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside from here on out, ” Mizuho managing director, Americas research, Abhey Lamba, said in a Sunday note. The iPhone maker’s stock fell 3.9 percent Friday as major tech stocks suddenly plunged. It was down 2.9 percent to $144.65 as of 10: 40 am ET Monday. The stock closed at $154.99 last Thursday before the big selling began.
Lamba said investors already expect strong iPhone 8 sales in the coming product cycle, likely limiting gains in Apple shares. And the same consumers driving those solid sales this time around will likely not spend on a new iPhone soon, reducing potential growth in fiscal year 2018, the report said.
Customers may also want to wait for the iPhone to adopt new OLED display technology at a lower cost, the note said. “In our view, Apple’s pricing is likely to become the main hurdle to meaningful expansion of its installed base, ” Lamba said. Lamba also expects that growth in China “is likely to remain weak” in the near-term, while the Indian market remains constrained due to limited affordability. The consensus estimate of 30 percent growth in services revenue per user over the next two years also “seems high, ” Lamba said.
“We remain of the view that Apple maintains a very strong franchise and could continue to gain incremental share of the smartphone market; however, the pace of share gains will likely meaningfully moderate as the market becomes more saturated, ” the report said.
Lamba does not assume any repatriation of Apple’s more than $170 billion overseas cash holdings, which he expects will be taxed. In May, Aswath Damodaran, a professor of corporate finance and valuation at New York University’s Stern School of Business, said Apple’s stock is fully valued around $140 a share, while $94 is a good place to buy.
Some on Wall Street also believe Apple’s recent downward volatility is a negative signal for the market.
“I’m not sure what the right value is for Apple, but it is extremely concerning to me, that a stock of this importance can trade like that – on virtually nothing!” Brean Capital’s Peter Tchir wrote in a note to clients Monday.
” After Friday’s price action, I can’t be anything but bearish near term. The ‘healthy’ rotation seems to hide the fact that for brief moments of time there was virtually no liquidity (at a price) for some of the biggest and most loved stocks, ” Tchir added.
— CNBC’s Tae Kim contributed to this story.
