Driven by expansion into new markets and optimistic prospects due to the Federal Reserve’s expectations of a restrained approach to interest rate hikes, tech giant Apple Inc. (AAPL) recently achieved a historic milestone as the first company to attain a market value of $3 trillion.

However, despite AAPL’s ongoing efforts to introduce cutting-edge products and services, prevailing economic uncertainty might hamper its performance. Therefore, in this article, we will discuss why it might be best to hold on to this month.

Shares of AAPL have soared 48.1% year-to-date and 53.9% over the past six months to close its last trading session at $192.46. However, the stock fell marginally intraday.

Here is what could shape AAPL’s performance in the near term:

Production Setbacks Pose Challenges

On June 5, AAPL introduced Apple Vision Pro™, a revolutionary spatial computer that seamlessly blends digital content with the physical world, while allowing users to stay present and connected to others.

Vision Pro creates an infinite canvas for apps that scales beyond the boundaries of a traditional display and introduces a fully three-dimensional user interface controlled by the most natural and intuitive inputs possible, a user’s eyes, hands, and voice.

However, AAPL had faced significant setbacks in its production of the Vision Pro augmented-reality headset, leading to substantial reductions in its production forecasts. The design complexities have proved challenging for Apple, according to sources cited by the Financial Times.

Bleak Financials

AAPL’s net sales decreased 2.5% year-over-year to $94.84 billion during the second quarter that ended April 1, 2023. Its gross margin declined 1.4% from the year-ago quarter to $41.98 billion.

Also, while the company’s operating expenses increased 8.6% year-over-year to $13.67 billion, its net income decreased by 3.4% from the prior year’s quarter to $24.16 billion.

Mixed Analyst Estimates

Analysts expect AAPL’s revenue to decrease by 1.5% year-over-year to $81.75 billion in the current quarter ending June 2023. Its EPS for the current quarter is expected to decline marginally from the previous-year quarter to $1.19.

Additionally, Street expects AAPL’s revenue and EPS to grow 6.6% and 10% from the prior year to $410.48 billion and $6.56, respectively, in the fiscal year 2024.

Premium Valuation

In terms of forward non-GAAP P/E, AAPL is trading at 32.25x, which is 37.8% higher than the industry average of 23.40x. Its forward EV/Sales multiple of 7.72% is 158.8% higher than the industry average of 2.98%. In addition, the stock’s forward P/B of 50.62x is significantly higher than the industry average of 4.31x.

Robust Profitability

AAPL’s trailing-12-month EBIT and EBITDA margins of 29.16% and 32.14% are 601.6% and 289.7% higher than the industry averages of 4.16% and 8.25%.

Additionally, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 145.61%, 39.09%, and 28.40% compared to the respective industry averages of 0.09%, 1.63%, and negative 0.05%.

POWR Ratings Show Uncertainty

AAPL has an overall rating of C, equating to a Neutral per our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 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’s C grade in Stability is justified by its 24-month beta of 1.23.

The stock has an A grade for Quality, consistent with its higher-than-industry profit margins. Also, its D grade in Value is in sync with its elevated valuation multiples.

In the 42-stock Technology – Hardware industry, AAPL is ranked #21. Access AAPL’s Growth, Momentum, and Sentiment ratings here.

Bottom Line

AAPL is currently trading above its 50-day moving average and 200-day moving average of $176.61 and $154.57, respectively, indicating an uptrend.

However, while the introduction of the Vision Pro augmented-reality headset garnered excitement, the company has encountered significant setbacks in its production, leading to substantial reductions in its production forecasts.

Moreover, AAPL’s financial performance has shown signs of deterioration. With declining net sales and net income, along with increased operating expenses, the company faces challenges in maintaining its growth trajectory.

Hence, waiting for a better entry point in this tech stock could be wise.

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

While AAPL has an overall POWR Ratings grade of C, equating to Neutral, one could also check out other stocks within the Technology – Hardware industry that are overall A (Strong Buy) rated: Panasonic Holdings Corporation (PCRFY), Spirent Communications plc (SPMYY), and Ricoh Company, Ltd (RICOY).

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AAPL shares were unchanged in premarket trading Tuesday. Year-to-date, AAPL has gained 48.56%, versus a 16.92% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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