Updated with stock prices.
NEW YORK (TheStreet) -- For the past 11 days, shares of Apple (AAPL) - Get Apple Inc. (AAPL) Report have fallen more than 13%, sparking concerns over the company's growth in China and bringing up questions over what's next for the tech giant.
As a result of Apple's plunge, Bank of America Merrill Lynch analyst Wamsi Mohan and his team downgraded Apple to "neutral" from "buy," with a $130 price target.
"Given Apple's expertise from supply chain all the way to software, Apple can become a significant player overnight across many markets," Mohan wrote. "Although we recognize this potential and continue to expect Apple to deliver phenomenal products, we believe the financials will take a pause from the significant growth witnessed over the past year and we would become more constructive at a lower stock price, when risk/reward becomes a better tradeoff."
Mohan cites six reasons for pressure on Apple shares.
Near-term slowdowns in revenue growth from the iPhone and no significant growth from new products like the Apple Watch
Uncertainty in China
The company's stock price is tied too closely to gross profit dollars, which he thinks will decelerate
The magnitude at which Apple beats Wall Street's expectations is decreasing, leaving little room for failure
The iPhone 6S and 6S+ aren't supposed to receive significant updates, which Mohan worries might draw in little demand
There aren't any expected capital return announcements besides what has already been announced
Shares of Apple were lower in premarket Wednesday trading, but popped back up in Wednesday morning by 1.8%, to $116.75.
The iPhone remains a major driver of Apple revenue, accounting for 63% of revenue in its most recent quarter. But Mohan and his team expect the gains made by the iPhone 6 and 6 Plus will not continue without some bumps, particularly in China.
"China accounted for ~26% (est.) of total iPhone sales in the June quarter," Mohan penned in the note. "On a year-over-year basis this is significant growth; however, market share trends are easing after three quarters of gains. Given the upside in iPhone estimates largely depends on new users, we see incremental risk to units in the near term."
But the iPhone isn't Apple's only product, and Mohan and his team project limited growth outside of the iPhone as demand takes its time to build for Apple's newer innovations.
"Revenues from Apple Watch remain limited in fiscal 2015. In our opinion, the watch will require more features, and the category needs to mature further, with higher benefit seen in fiscal 2016," Mohan wrote.
TheStreet Ratings team rates APPLE INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate APPLE INC (AAPL) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, robust revenue growth and notable return on equity. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- APPLE INC has improved earnings per share by 44.5% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, APPLE INC increased its bottom line by earning $6.43 versus $5.66 in the prior year. This year, the market expects an improvement in earnings ($9.13 versus $6.43).
- The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Computers & Peripherals industry average. The net income increased by 37.8% when compared to the same quarter one year prior, rising from $7,748.00 million to $10,677.00 million.
- Despite its growing revenue, the company underperformed as compared with the industry average of 36.5%. Since the same quarter one year prior, revenues rose by 32.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Computers & Peripherals industry and the overall market, APPLE INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
You can view the full analysis from the report here: AAPL Ratings Report