Apple Inc (NASDAQ:AAPL) Trims Forecast: Is the Stock in Trouble?
Apple Inc.(NASDAQ:AAPL) recently warned that its sales could be down for 2019. The company’s sales in China are expected to be down this year as a result of trade-related issues with the country, as the U.S. continues to play hardball on trade with many countries.
And with a significant part of the company’s sales coming from China, it’s going to have a big impact on Apple’s top line. Previously, sales were expected to be between $89-$93 billion for the last three months of the year. Instead, the final tally is expected to come in at around $84 billion. Realistically, we’re looking at a 5-10% decline depending on where you slice it. It’s also going to last for more than just one quarter. While it may not seem like a big adjustment, in the world of expectations and forecasts, on Wall Street, any change, especially a negative one, is going to have a big impact.
The first problem is that sales and profits will be lower in the upcoming quarter as a result of this news. Another problem, however, is that it could have analysts second-guessing future forecasts by Apple and how accurate they will be going forward, especially given how suddenly this change in forecast came to be. Investors don’t like surprises – especially bad ones – and this may weigh on any future forecasts.
In early trading on Thursday, Apple’s stock was down around 10% on the news and it’s at a new 52-week low as a result of the sell-off.
Is the reaction warranted?
At first glance, it looks like yet another market overreaction. There are more than a couple of problems with this.
First, the talks about Apple CEO Tim Cook having credibility issues as a result of this are overblown. Even the best forecasts may need adjusting and this is not something that has been common for Apple to do. So to suggest based on this that this is indicative of a bigger problem is ridiculous. Especially when you consider Tim Cook has been in charge since 2011.
Secondly, I would heavily discount any trade-related issues. After the 2020 U.S. election, things could look a lot different if a new leader is put into place who has a much less protectionist view and is more open to trade. Either way, I don’t expect anti-trade policies to last long. As soon as the current president is out of office I would expect things to change in a hurry.
What does this mean for investors?
Apple dropping on news that’s ultimately related to trade issues is a sign that it could be a great time to buy the stock. It might be tempting to wait a few more days or weeks to see if the decline grows. However, I wouldn’t hesitate to buy Apple stock regardless of this change in outlook.
Softer expectations are now priced into the stock and trade issues are likely to sort themselves out once a more pro-trade leader in running things out of the White House. So over the long term, Apple still remains a great buy. Investors would be wise to take advantage of any dips in price as a result of this news.