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Apple This Week: Earnings Bummer

Apple shares continue to move lower, due to a combination of macroeconomic factors and poor reaction to earnings results. Here is where the stock stands at the end of the week.

This past week Apple stock dipped below $110 per share again for the first time in a month. Pushing the price lower was quite a bit of market-wide volatility and an ill-received earnings report. Between the close on October 23 and October 30, Apple was down -5.4%.

Aside from a few hiccups and day-to-day noise, Apple has been dropping consistently since October 12, when shares were priced at $124. Over this two-week period, losses amounted to about 12%.

Due to several factors ranging from the resurgence of COVID-19 cases in Europe and the US to the Presidential election, October has not been an easy month for the markets. It does not help that Apple is still a bit richly valued, at a forward earnings ratio of nearly 34x.

For the past week, the FAAMG ex-Apple group spent most of the time trailing the performance of Apple. That is, until Super Thursday’s after-hours trading, when Apple crumbled. The S&P 500 had a rough week as well, finishing the five-day period down -5.5%.

The graph below is a cool illustration of this week’s price action. It depicts FAAMG ex-Apple and the S&P 500 relative to the performance of Apple shares (the flat line in blue).

Bull drivers

Even though Apple closed Thursday up a solid +3.7%, I do not believe that there was a single company-specific factor pushing the stock higher this week. Other than short-lived, pre-earnings optimism, that is.

The Thursday spike seems to have been driven by investors betting on very solid earnings results. But as we will see below, Apple’s fiscal fourth quarter performance was handicapped by sales of its most popular product having fallen off a ravine.

Bear drivers

Yes, broad market sentiment did not help Apple in the past five trading days. The US Presidential election is approaching, COVID-19 cases continue to spike in Europe and North America, and the US economy will not be getting any fiscal boost in the foreseeable future.

But when it comes to company specific developments, the problem was really the iPhone. Sales of the device dropped by 21% in fiscal fourth quarter, one of the worst drops in recent memory. The executive team pointed at the iPhone 12’s launch delay, saying that demand for phones had been strong prior to mid-September.

Investors seem skeptical, and I think they have good reasons to be. Think about the iPhone X launch, in 2017, which was also delayed and pushed to November. In spite of it, iPhone sales and units shipped still increased in fiscal fourth quarter 2017 by 2% to 3%. This was not the case, at all, in 2020.

Below is a chart that compares the performance of Apple stock against the S&P 500 and the industry. Apple’s dashboard continues to look better in the longer term than in the more recent past.

Explore more data and graphs

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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)