The new year has begun, but Apple’s stock has struggled to gain much traction.
So far in 2021, shares of the Cupertino company have declined 3%. By contrast, the S&P 500 has risen about 1% during the same period.
Even the tech sector, flat for the year (see green “VGT” line below), has been outperforming Apple. Meanwhile, the consumer discretionary peer group has climbed nearly 5% year-to-date.
Fundamentals look fine
When it comes to analyzing share price performance, it is easier to talk about the “what” than the “why”. But we can still take a swing at explaining Apple’s struggles in the first few days of 2021.
Fundamentally, I see few reasons for investors to be skeptical of Apple stock at the start of the new year. From a macroeconomic perspective, the market still seems optimistic about a recovery in 2021. The broad market moves, especially in cyclical stocks, point in this direction.
In addition, hopes for government stimulus that could bridge the gap between the 2020 COVID-19 crisis and the next leg up in economic expansion were boosted by the Democratic party regaining control of the US Senate.
Simply put: the more money flows into consumers’ pockets, the more likely it is that Apple will find demand for its products and services. And Democrats are most supportive of further fiscal aid.
Lastly, data continues to mount on the success of the iPhone in the holiday quarter. Add to it the encouraging early read on Mac sales, and one can easily argue for a consensus-beating earnings report to be delivered in just about two weeks.
Then, why so weak?
What seems to have tripped Apple shares in 2021 has little to do with business fundamentals.
Rather, P/E (price to earnings ratio, a valuation metric) has declined about 6% to 32.2x since the last days of December 2020. Meanwhile, earnings estimates for the current year keep on creeping higher.
What this means is that investors have not necessarily become less confident about Apple’s future earnings and cash flow potential. But they have been less willing to pay for those expected results.
A few factors may explain the market’s aversion for Apple stock in January:
- Apple gained about 250% in market value between 2019 and 2020. How far is too far?
- A rotation out of tech and into cyclical stocks seems to be well underway, ahead of what most expect to be a year of recovery in economic activity.
- 2020 ended with a perhaps speculative and unjustified Apple Car rally. Maybe shares now need to correct in the short term before they can climb higher.
Of course, there is no bearishness that a successful earnings day, should it happen later this month, could not wipe out overnight.
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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)