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The Bears Have Spoken: Apple Stock Could Drop 18%

Wall Street is overwhelmingly bullish on Apple stock. However, two analysts have recently argued for an imminent decline in share price, following the recent rally.

Apple stock  (AAPL) - Get Apple Inc. Report continues to climb relentlessly on its way to the $3 trillion mark. But while Wall Street still has a “strong buy” consensus rating on the name, not every analyst believes that AAPL will climb from its current peak of $174 in the foreseeable future.

In the past couple of days, two experts who hold a neutral stance on Apple have spoken. One of them believes that the stock is worth only $142 apiece, suggesting 18% downside from current levels. Here is why these analysts are skeptical.

Figure 1: Apple store in New York, NY.

Figure 1: Apple store in New York, NY.

(Read more from the Apple Maven: Apple Stock Is On Fire: $3.2 Trillion Market Cap Is Next)

Apple stock rises, but so do risks

Goldman Sachs’ Rod Hall is a former bear who threw in the towel a few months ago and changed his position on AAPL from sell to neutral. However, according to TipRanks, the analyst has just restated his $142 price target on Apple stock, pointing at 18% downside risk following the impressive rally of the past few weeks.

During a recent CNBC interview, Mr. Hall explained that he is cautious about AAPL mostly due to the company’s user base and average revenue generated per user. First, he sees subscriber growth slowing down to GDP levels. Second, Rod thinks that ARPU (average revenue per user) will stabilize, after spiking by what he estimates to be an impressive 20% during the thick of the pandemic.

Goldman Sachs wraps up its not-so-bullish case by observing how a reduction in iPhone lead times in the US, Europe and China in the holiday period could be a sign of slowing demand. The rationale: if supply is constrained in 2021 and lead times have dropped, the missing piece in this equation is probably a decline in demand for the devices.

Credit Suisse was the other research shop to publish recently on Apple. Analyst Sami Badri assumed coverage from Matthew Cabral, and had his chance to change the bank’s rating on AAPL from neutral. Instead, he reinforced the recommendation and set the price target at $150.

Mr. Badri’s predecessor has often cited longer lead times as an indication of demand overwhelming supply. With the supply-demand dynamic now heading closer to a state of balance, this could be bad news for Apple in the short term — especially days after Bloomberg’s report that the Cupertino company may have overordered iPhone units for the holiday period.

Apple Maven’s take

I believe that more bearish cases against AAPL could surface as Apple stock moves higher. While I think that the argument against an investment here tends to lean too heavily on near-term risks (e.g. iPhone sales in fiscal Q1), there is something to be said about a stock that continues to climb relentlessly and valuation multiples that keep expanding.

I maintain my views on AAPL: the stock seems to be a buy-and-hold for the long term, considering growth opportunities in services at first and brand-new devices later — think mixed reality and autonomous EV.

That said, Apple stock tends to perform substantially better following a sharp pullback. Therefore, I think that investors that buy shares today should not count on oversized, 2020-like returns going forward.

(Read more from the Apple Maven: Apple Stock: What Happens When The Cash Runs Out?)

(Disclaimers: this is not investment advice. 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)