Apple: Dropping Profit Margin May Hurt Stock (NASDAQ:AAPL)

Introduction

Apple is the largest company in the world, with a $2 trillion-plus market cap. They participate in the hardware phone industry, computer, and other related services. Apple’s global market share has been stable over the years against Asian competitors. Apple’s premium pricing also makes their hardware the most expensive in the industry. Will it maintain its profit margin with high inflation and dropping global demand?

Fundament shows market cap strength but drops profit margin

Ratios

The current and quick ratios over the last five years have been dropping, which is quite surprising for a company like Apple based on its size.

Unnamed: 0	2018	2019	2020	2021	2022
Period	FY	FY	FY	FY	FY
Current ratio	1.124	1.540	1.364	1.075	0.879
Quick ratio	0.987	1.384	1.218	0.910	0.709
Cash ratio	0.222	0.462	0.361	0.278	0.154

Click to enlarge

Source: Financial Modelling Prep

Growth

Revenue growth and gross profit have been mixed over the last five years. Only net income growth was strong for Apple in 2021. This should be a big concern for long-term Apple investors. Is this due to a slowdown in iPhone sales? Or are they too expensive for most people in this highly inflationary world?

Unnamed: 0	2018	2019	2020	2021	2022
Period	FY	FY	FY	FY	FY
Revenue growth	0.159	-0.020	0.055	0.333	0.078
Gross profit growth	0.155	-0.034	0.067	0.456	0.117
Ebit growth	0.156	-0.098	0.037	0.644	0.096
Operating income growth	0.156	-0.098	0.037	0.644	0.096
Net income growth	0.231	-0.072	0.039	0.649	0.054
Eps growth	0.296	-0.003	0.106	0.713	0.085

Click to enlarge

Source: Financial Modelling Prep

Enterprise Value

The share price nearly doubled between 2019 and 2021. Also, the stock price growth has almost risen 50% since then. Market capitalization has more than doubled over the last five years, showing excessive growth. The question of concern is the profitability of Apple in general over the years.

Unnamed: 0	2018	2019	2020	2021	2022
Symbol	AAPL	AAPL	AAPL	AAPL	AAPL
Stock price	53.060	62.263	115.050	148.640	149.450
Number of shares	19.822 B	18.471 B	17.352 B	16.701 B	16.216 B
Market capitalization	1.052 T	1.150 T	1.996 T	2.482 T	2.423 T
Add total debt	114.483 B	108.047 B	112.436 B	124.719 B	120.069 B
Minus cash and cash equivalents	25.913 B	48.844 B	38.016 B	34.940 B	23.646 B
Enterprise value	1.140 T	1.209 T	2.071 T	2.572 T	2.520 T

Click to enlarge

Source: Financial Modelling Prep

Estimates

Regarding forward guiding estimates, revenues will remain strong over the next six years. Dividend growth is expected to remain flat, but how will it affect the long-term stock price of Apple? EBITDA will continue to strengthen over the next six years. The concerning question about Apple is profitability and its impact on its stock price. Seeing such growth from a $2+ trillion market cap is impressive, but is it sustainable?

YEARLY ESTIMATES	2022	2023	2024	2025	2026	2027
Revenue	392,777	407,094	430,401	448,581	502,151	565,588
Dividend	0.91	0.99	1.05	1.15	1.03	1.06
Dividend Yield (in %)	0.66 %	0.72 %	0.76 %	0.84 %	0.75 %	0.77 %
EPS	6.10	6.25	6.83	7.11	7.96	8.20
P/E Ratio	22.52	21.98	20.10	19.30	17.25	16.74
EBIT	119,031	118,745	125,307	129,182	144,326	–
EBITDA	130,905	130,761	137,379	142,184	158,798	175,329

Click to enlarge

Source: BusinessInsider

Technical Analysis Show Now Strong Current Momentum

Fibonacci

The Fibonacci trendline peaked roughly last year while Apple stock price was in rangebound. Apple has not collapsed in stock price compared to other big tech companies, which shows how well the product line has been tightly managed.

Bollinger Bands

There is only a little to say here about Bollinger Bands other than that Apple’s stock price appears to be pushing toward the upper band. This could easily hint towards a potential short-term increase in Apple’s share price.

MACD

MACD line shows that the compressed stock price of Apple has been rangebound between $100 and $150. Will the momentum return to the share price of Apple?

With the most recent activity on the zero line, you can easily see that price declined as momentum was not strong enough to sustain a stock price increase.

RSI

Like the MACD chart, the RSI has had similar moves, whereas the share price is currently approaching oversold. If momentum returns to the USA market indices, one can expect Apple stock price should continue to build. When you compare other technology companies, Apple has somewhat underperformed to certain ones but, as said, has not collapsed in stock price.

Prediction via AI

Monte Carlo

This Monte Carlo simulation does show a potential 30% return in price with a higher probability of predicted paths. On the other hand, in the normalized distribution chart, there is a higher likelihood of stock price expectation with a potential 20% (on average) increase.

Regression

With regression analysis, the red line over the next 30 days shows that Apple stock price may stay rangebound during this period.

Risk shows clear uncertainty

Price vs. Short Volume

There appears to be no shorting concern as it is below 50% of the total trading volume. This has been historically the same since the summer of this year.

Source: StockGrid

Insider

Insider Stats

As Apple executives continue to sell the stock, this only confirms that stock prices may continue to fall as global markets weaken. This is another way of saying that global demand for Apple products is either overpriced or just dropping in this rising inflation world.

Unnamed: 0	X	Filing Date	Trading Date	Ticker	Insider	Title	Trade Type	Price	Quantity	Owned	Delta Own	Value
0	nan	2022-11-01 18:30:34	2022-10-28	APPL	Maestri Luca	SVP, CFO	S – Sale	$155.95	-176,299	110,673	-61%	-$27,493,275
1	D	2022-10-18 18:33:15	2022-10-17	APPL	O’Brien Deirdre	SVP	S – Sale+OE	$142.45	-8,053	136,290	-6%	-$1,147,150
2	D	2022-10-04 22:05:07	2022-10-03	APPL	O’Brien Deirdre	SVP	S – Sale+OE	$142.16	-176,299	136,290	-56%	-$25,062,882
3	D	2022-10-04 22:02:25	2022-10-03	APPL	Adams Katherine L.	SVP, GC, Secretary	S – Sale+OE	$141.41	-181,139	427,334	-30%	-$25,615,117
4	A	2022-08-22 18:43:18	2022-08-17	APPL	Maestri Luca	SVP, CFO	S – Sale	$174.96	-96,735	110,673	-47%	-$16,924,259
5	nan	2022-08-19 18:30:27	2022-08-17	APPL	Maestri Luca	SVP, CFO	S – Sale	$174.96	-96,735	110,673	-47%	-$16,924,259
6	nan	2022-08-05 18:30:49	2022-08-03	APPL	Adams Katherine L.	SVP, GC, Secretary	S – Sale	$164.77	-25,000	427,334	-6%	-$4,119,155

Click to enlarge

Source: Open Insider

Insider Activity

Date	Shares Traded	Shares Held	Price	Type	Option	Insider	Trade
2022-09-30	365,600.00	476,273.00	nan	Buy	No	Maestri Luca	365600.0
2022-09-30	365,600.00	501,890.00	nan	Buy	No	Maestri Luca	365600.0
2022-09-30	177,870.00	677,392.00	138.2	Sell	No	Maestri Luca	-177870.0
2022-09-30	189,301.00	286,972.00	138.2	Sell	No	Maestri Luca	-189301.0
2022-09-30	184,461.00	608,473.00	138.2	Sell	No	O’BRIEN DEIRDRE	-184461.0
2022-09-30	189,301.00	312,589.00	138.2	Sell	No	O’BRIEN DEIRDRE	-189301.0
2022-09-30	365,600.00	792,934.00	nan	Buy	No	KONDO CHRIS	365600.0
2022-10-02	5,400.00	603,073.00	138.44	Sell	No	O’BRIEN DEIRDRE	-5400.0
2022-10-02	13,199.00	589,874.00	139.15	Sell	No	KONDO CHRIS	-13199.0
2022-10-02	27,669.00	562,205.00	140.34	Sell	No	O’BRIEN DEIRDRE	-27669.0
2022-10-02	56,271.00	505,934.00	141.19	Sell	No	O’BRIEN DEIRDRE	-56271.0
2022-10-02	65,350.00	440,584.00	142.45	Sell	No	O’BRIEN DEIRDRE	-65350.0
2022-10-02	13,250.00	427,334.00	142.93	Sell	No	Adams Katherine L.	-13250.0
2022-10-02	66,880.00	203,316.00	142.17	Sell	No	Adams Katherine L.	-66880.0
2022-10-02	67,026.00	136,290.00	142.83	Sell	No	Adams Katherine L.	-67026.0
2022-10-02	42,393.00	270,196.00	141.09	Sell	No	Adams Katherine L.	-42393.0
2022-10-14	13,136.00	58,104.00	nan	Buy	No	Adams Katherine L.	13136.0
2022-10-14	16,612.00	152,902.00	nan	Buy	No	Adams Katherine L.	16612.0
2022-10-14	6,399.00	51,705.00	138.38	Sell	No	O’BRIEN DEIRDRE	-6399.0
2022-10-14	8,559.00	144,343.00	138.38	Sell	No	Adams Katherine L.	-8559.0
2022-10-16	8,053.00	136,290.00	142.45	Sell	No	Maestri Luca	-8053.0
2022-10-27	14,274.00	272,698.00	154.7	Sell	No	WILLIAMS JEFFREY E	-14274.0
2022-10-27	85,147.00	187,551.00	155.63	Sell	No	O’BRIEN DEIRDRE	-85147.0
2022-10-27	69,678.00	117,873.00	156.46	Sell	No	Adams Katherine L.	-69678.0
2022-10-27	7,200.00	110,673.00	157.2	Sell	No	Maestri Luca	-7200.0

Click to enlarge

Source: BusinessInsider

Recommendations

Recommendations show that most analysts indicate neutral calls, which I agree with. There seems to be no collapse in Apple’s share price, but again, if markets rise, Apple may underperform in the short run. This should improve once inflation dies off, when people will begin to buy overpriced Apple products again.

Interval	RECOMMENDATION	BUY	SELL	NEUTRAL
One month	SELL	5	13	8
One week	NEUTRAL	9	7	10
One day	NEUTRAL	9	8	9

Click to enlarge

Source: Trading View

Conclusion

Apple has been a reasonably impressive stock performer over the years; it is also remarkable how this company can maintain its market cap. As shown in the fundamentals, there should be concerns about profitability dropping with a lower margin. Despite the company’s growth over the next five to six years, investors should ask themselves how this will impact their long-term profitability and Apple share price. Will there be a better hardware manufacturer for both phones and computers that will continue to eat into Apple’s market share? Or will they be a general commoditization of the industries Apple is currently involved with? There is also an understanding of how Apple is diversifying into other product lines of health through its services division and a new car to compete in the automobile industry. If this happens, Apple will continue to grow with diversified new product revenue. As for now, Apple should remain on hold but will return to a buy once inflation and weak global demand pass.