While renowned tech company Apple Inc. (AAPL) is well-poised for robust growth in the long run with consistent innovations in hardware, software, and services, the company appears to be contending with financial challenges currently. Furthermore, it continues to suffer from macroeconomic headwinds such as persistent inflation, weakened consumer demand, and rising recession worries.

On June 5, the company unveiled Apple Vision Pro, a revolutionary spatial computer that actively integrates digital content with the physical world, propelling innovation to unprecedented levels. Just over a week after announcing its biggest product launch of the year, AAPL reached a new all-time high.

Regarding the “most advanced personal electronics device ever,” Tim Cook, AAPL’s CEO, said, “Built upon decades of Apple innovation, Vision Pro is years ahead and unlike anything created before — with a revolutionary new input system and thousands of groundbreaking innovations.”

Experts assert that the $3,499 Apple Vision Pro has the potential to surpass other virtual reality headsets in terms of market penetration, despite its significantly high price tag. This can be attributed to AAPL’s exceptional design, unwavering brand loyalty, and cutting-edge technology.

Moreover, the company has made further strides in expanding its product lineup. It recently unveiled a bigger MacBook Air laptop alongside high-end desktops tailored for 3D designers and programmers. The company also revealed major updates to iPhone, iPad, and Apple Watch operating systems.

Despite the impressive product launches and developments, AAPL’s CFO Luca Maestri anticipates a potential 3% decline in revenue for the current quarter compared to the previous year. This follows a consecutive decline in overall sales during the second quarter of fiscal 2023, despite the company reporting stronger-than-expected iPhone sales.

The company encountered setbacks in its Mac and iPad businesses as well. Both segments experienced greater-than-expected falls, hindered by parts shortages. Mac revenue amounted to $7.17 billion, missing the expected $7.80 billion, while iPad revenue stood at $6.67 billion, slightly below the projected $6.69 billion.

AAPL’s immediate outlook appears dim as it struggles in the digital advertising and mobile gaming divisions. Maestri said, “We expect our June quarter year-over-year revenue performance to be similar to the March quarter assuming that the macroeconomic outlook does not worsen from what we are projecting today for the current quarter,”

Shares of AAPL have gained 7.2% over the past month and 37.5% over the past six months to close its last trading session at $184.92.

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

Bleak Financials

For the second quarter that ended April 1, 2023, AAPL’s net sales decreased 2.5% year-over-year to $94.84 billion. Its gross margin declined 1.4% from the year-ago value to $41.98 billion. Also, the company’s operating expenses increased 8.6% year-over-year to $13.67 billion.

Furthermore, AAPL’s net income decreased by 3.4% from the prior year’s period to $24.16 billion. In addition, as of April 1, 2023, the company’s current assets stood at $112.91 billion, compared to $135.41 billion as of September 24, 2022.

Mixed Analyst Estimates

Analysts expect AAPL’s revenue to decrease by 2.4% year-over-year to $384.91 billion for the fiscal year ending September 2023. Similarly, the company’s EPS for the current year is expected to decline 2.2% from the previous year to $5.97.

However, AAPL’s revenue and EPS for the next fiscal year ending September 2024 are expected to grow 6.8% and 9.8% from the prior year to $410.95 billion and $6.56, respectively.

High Valuation

In terms of forward non-GAAP P/E, AAPL is trading at 30.96x, 36.7% higher than the industry average of 22.66x. Its forward EV/EBITDA multiple of 22.83 is 55.6% higher than the industry average of 14.67x. In addition, the stock’s forward Price/Sales of 7.56x is 166.2% higher than the industry average of 2.84x.

Attractive Profitability

AAPL’s trailing-12-month EBITDA margin of 32.14% is 294.9% higher than the industry average of 8.14%. Also, its trailing-12-month net income margin and levered FCF margin of 24.49% and 21.76% are significantly higher than the industry averages of 1.97% and 7.01%, respectively.

In addition, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 145.61%, 39.09%, and 28.40% compare to the respective industry averages of 0.50%, 1.66%, and 0.02%.

POWR Ratings Show Uncertainty

AAPL’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 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 has an A grade for Quality, consistent with its higher-than-industry profitability. However, the stock has a C grade for Sentiment, consistent with its mixed analyst expectations.

In addition, the stock has a D grade for Value, in sync with its higher-than-industry valuation.

AAPL is ranked #21 in the 44-stock Technology – Hardware industry. Click here to access AAPL’s Stability, Momentum, and Growth ratings.

View all the top stocks in the Technology – Hardware industry here.

Bottom Line

While the tech giant’s recent trailblazing launches pave the way for substantial long-term growth, AAPL currently grapples with the prevailing macroeconomic challenges. Moreover, the company expects a drop in revenue for the current quarter.

Given AAPL’s bleak financials, significantly high valuation, and near-term bleak growth prospects, it could be wise to wait for a better entry point in this tech stock.

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 TransAct Technologies Incorporated (TACT).

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

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AAPL shares were trading at $184.92 per share on Monday afternoon, down $1.09 (-0.59%). Year-to-date, AAPL has gained 42.74%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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