Apple investors
and tech lovers alike are eagerly awaiting the company's product event
on Tuesday, at which Apple is expected to announce the iPhone 6 and
perhaps also a smartwatch. But if past is prologue, then Apple bulls
will soon run into tough times, contends trader Dan Nathan of RiskReversal.com .
Apple shares (AAPL)
recently hit an all-time high, before retreating a bit. The last time
Apple shares were near current levels, the company had just announced
the iPhone 5. But after impressing investors with the fresh technology,
the shares went on to lose nearly half of their value over the ensuing
six months.
It was
at the time of "the much-anticipated iPhone 5 launch back in 2012 when
the stock was at the prior highs," Nathan pointed out Friday on CNBC's " Options Action ." And ahead of the presumptive release of the iPhone 6, the story is similar.
"It had a massive run this year right into it. There was a huge
rotation into the stock this year because of the product launches that
are up on us," he said.
And that similar stock run is mirrored by another eerie similarity.
Apple's price-earnings ratio, which simply compares the stock price to
the company's earnings, is also just where it was back in September 2012
when the stock ran into trouble.
That means that in order for the stock to keep rising, either Apple
will have to show higher earnings, or investors will need to become
willing to pay more for each dollar of earnings than they were
previously. And Nathan doesn't think either scenario is too likely.
First of all, as the prior chart makes clear the stock has already
enjoyed what Nathan terms a "massive sentiment shift," so it may not be
high time for a fresh surge of bullish sentiment.
And when it comes to Apple's profits, Nathan points out that since
2012, the company's gross margin has fallen from 44 percent to 39
percent-a victim, he says, of increased pricing pressure from
competitors, and commoditization of Apple's products.
Michael Khouw , primary strategist at Dash Financial, is also skeptical about Apple's prospects at this point.
"One of the biggest justifications for buying Apple here is that we're
going to see some form of multiple expansion. What justifies that?
Revenue growth or income growth," Khouw said. "We do not expect that
this year we're going to see, quarter-on-quarter versus 2012, higher net
income than we did then. Although we probably will see marginally
higher revenues."
For that
reason, "I would keep my eye on the revenue number. If that thing
starts to drift off, then I don't see why the multiple would expand at
all," Khouw said.
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