With a year-to-date (YTD) gain of about 19%, Apple Inc. (NASDAQ:AAPL) is trailing behind major indices like the S&P 500 Index ($SPX) and the Nasdaq Composite ($NASX). As Wall Street’s sentiment skews bearish, many are questioning: is Apple stock a buy now, or should investors wait for a more favorable opportunity?
This article delves into the factors influencing Apple’s underperformance in 2024 and evaluates its prospects.
Why Is Apple Stock Underperforming in 2024?
Apple’s recent underperformance stems from several headwinds:
- Tepid iPhone Sales
The iPhone 16 has failed to ignite significant growth, with Apple projecting “low to mid-single digit” topline growth for the current quarter. Weak iPhone sales underscore a challenging environment in Apple’s flagship product segment.
- China Headwinds
Apple faces significant challenges in China, including declining market share and rising competition from domestic brands like Huawei. During Singles Day, Apple’s sales fell by double digits, worse than the overall 9% smartphone market decline.
- Lack of New Growth Drivers
Apple’s search for its next “iPhone-sized” growth opportunity has yet to yield results. Initiatives like the Vision Pro virtual reality headset have struggled to gain traction, leaving the company without significant new revenue streams.
- Trade Tensions with China
With Donald Trump set to return to the White House in 2025, the prospect of heightened U.S.-China trade tensions looms large. Additional tariffs on Chinese imports could hurt Apple, particularly as Chinese consumers already pivot toward domestic alternatives amid geopolitical tensions.
- High Valuation Concerns
Apple’s next-12-month (NTM) price-to-earnings (P/E) ratio stands at 31x, making the stock expensive relative to its growth outlook. This limits room for error in the company’s execution.
AAPL Stock Forecast: What Analysts Are Saying
Apple (NASDAQ:AAPL) has a consensus “Moderate Buy” rating among analysts, reflecting mixed sentiment. It’s the second worst-rated stock among the “Magnificent 7,” ahead of only Tesla (NASDAQ:TSLA).
Notably, three brokerages downgraded AAPL stock in early 2024, citing tepid sales of the iPhone 16 and challenges in China. While Apple’s Worldwide Developer Conference (WWDC) in June boosted sentiment with AI-related announcements, skepticism around its near-term growth remains.
Should You Buy Apple Stock Now or Wait for a Dip?
Despite the headwinds, Apple stock remains a robust long-term investment. Its ability to deliver consistent topline growth in the mid-single digits and bottom-line growth in double digits makes it a “quality compounder,” as noted by Bernstein analysts.
However, the current risk-reward ratio may not be compelling enough to buy Apple stock at these levels. Trade tensions could introduce further volatility, as seen in 2018 when AAPL fell over 30% during Trump’s first term amid escalating tariffs.
The Case for Waiting
Valuation Concerns: At 31x P/E, Apple’s premium valuation leaves little margin for error.
Potential Selloff: Trade tensions or weaker-than-expected performance could drive the stock lower, presenting better buying opportunities.
Institutional Positioning: According to Morgan Stanley, Apple is the second most under-owned mega-cap stock among institutions, signaling potential for a rebound but also highlighting current caution.
The Long-Term Outlook
While waiting for a dip might be prudent, Apple stock’s long-term potential remains strong. As Bernstein highlights, it is a high-quality compounder capable of delivering sustainable growth despite near-term challenges.
For now, investors may consider holding existing positions and waiting for a more favorable entry point to add to their portfolios. While Apple faces hurdles, its unparalleled brand loyalty and innovative capacity make it a core holding in any long-term portfolio.
Featured Image: Megapixl© Bedo
