Is It Time to Take Profits on Apple Stock?

Commanding a mammoth market cap of close to $3 trillion, Apple (AAPL) is the most valuable company in the world - and its scale outpaces the gross domestic product (GDP) of countries like France and Germany, too. Apple has achieved this feat by building a dominant luxury tech brand over the years, driven by its industry-leading products such as the iPhone, Mac, AirPods, and iPad, which have helped define the cultural zeitgeist. Moreover, in recent years, this powerful ecosystem of products has developed Apple's Services business into an important source of revenue.

After a solid performance in 2023, the Cupertino-based tech giant - founded by Steve Jobs, and now led by Tim Cook - has started 2024 on a negative note. With less than two full trading days in the books, Apple stock is already down more than 4% on a year-to-date basis. With some experts warning of additional downside in store, should investors take their profits on AAPL and run - or is this latest dip a buying opportunity? Here's a closer look.

Why Did Barclays Downgrade AAPL?

The most immediate trigger for the sell-off in Apple's stock was a New Year's downgrade from brokerage firm Barclays. Analyst Tim Long now has an “Underweight” rating on AAPL, and reduced his price target to $160 from $161. 

That's a new Street-low price target for AAPL, and it implies expected downside of more than 13% from current levels. Apple stock hasn't traded below $160 since last March.

In a note accompanying the downgrade, Long warned of “lackluster” iPhone 15 sales, along with the potentially negative impact of increased regulatory scrutiny on AAPL's high-margin Services business.

For what it's worth, Barclays has maintained the equivalent of a “Hold” rating on AAPL since re-assuming coverage of the tech stock in 2019, when it was trading around $50 per share.

Inside Concerns About Slower Revenue Growth at AAPL

Barclays isn't alone in flagging concerns about revenue shrinkage at Apple. The tech giant just reported its fourth consecutive quarter of declining revenue, and concerns over the lack of growth at Apple were the topic of a late-December Barron's cover story.

In the latest quarter, Apple reported net sales of $89.5 billion, down 0.7% from the previous year. Although revenues from services rose 16.3% to $22.3 billion, product revenues were mixed, with notable weakness in wearables and Macs.

Significantly, Alphabet (GOOGL) is estimated to account for up to $19 billion in Services revenue annually via its deal to appear as the default search option on Safari - an arrangement that is currently under antitrust scrutiny, per the bearish note from Barclays this week.

During the fiscal fourth quarter, sales from China were roughly flat year-over-year at $15.08 billion, which further exacerbated concerns over rising competition from Huawei. Customers in the region have preferred Huawei over Apple's costlier iPhone due to its 5G capabilities, which could hinder growth in the key market - where AAPL holds a smartphone market share of only around 18%, compared to its relatively mature 42% footprint in the U.S.

Further, a Bloomberg report cited that the Chinese government has banned its workers from using iPhones. Although the Chinese government later denied the findings of the report, the alleged development drives home the fact that Apple’s products could get caught up in rising trade tensions between the U.S. and China.

More recently, the company's struggling wearables business took another body blow when Apple lost a bid to delay a holiday-season import ban on its Apple Watch, which was previously found to have infringed on IP developed by Masimo (MASI). 

What Does Wall Street Expect for Apple Stock?

For the fiscal year ahead, Wall Street is expecting AAPL to report revenue growth of just 3.6% to $397 billion, with EPS projected to rise 7.7% to $6.60. The stock is currently valued at 28x forward EPS, which appears reasonable compared to Apple's tech sector peers - though the 7.27x forward sales multiple looks a little rich.

On the other hand, AAPL offers a solid 0.52% dividend yield - backed by a decade of consistent growth, a low 15% payout ratio, and a massive cash hoard.

All things considered, most analysts are more upbeat than Barclays on the stock. The consensus rating is a “Moderate Buy” among 28 analysts in coverage, with 17 “Strong Buys,” 3 “Moderate Buys,” and 8 “Holds.” 

Plus, the average 12-month price target is $205.79, implying expected upside of 11.7% from here.