Apple (NASDAQ:AAPL) stock has had a great run year to date, with shares surging about 38% in that time.
The company's stock has handily outperformed both the Dow Jones Industrial Average and the Nasdaq, which is an incredibly impressive feat given how large Apple's market capitalization is.
It's always important, though, to understand the factors that can push a company's stock lower. Having such an understanding isn't just for short-sellers keeping an eye out for potential catalysts. It's also critical for those bullish on a stock to understand these factors for risk-management purposes.
Here are three things that could knock Apple stock down.
What if iPhone 8 doesn't live up to expectations?
Expectations are quite high -- from both investors and customers alike -- for Apple's upcoming iPhone lineup. The trio of new iPhones slated to launch in just a few short weeks is expected to help Apple enjoy increased iPhone unit shipments. There's also a broad expectation that the company will see a boost in iPhone average selling prices, as product mix shifts toward the premium-priced iPhone with OLED display.
Even if Apple delivers excellent iPhone results over the coming product cycle, it's hard to tell the precise expectations that are built into the current share price. As we've seen with other stocks, even if a company reports results that whiz right past published analyst estimates, the shares can still drop because investors were simply expecting too much.
I expect this is probably the single biggest risk to Apple stock over the coming product cycle: unrealistic investor expectations.
What if the services biz slows down?
Apple's financial results and ultimately its stock price have historically been heavily dependent on the company's iPhone business.
iPhone sales made up about 63% of Apple's net revenue during its fiscal year 2016.
However, Apple's second-largest business is its fast-growing services segment. This business made up 11% of the company's revenue during its fiscal year 2016. During the first nine months of its current fiscal year, services revenue grew 19% year over year and made up 12% of the company's revenue over that period.
It's still no iPhone, but the growth rate of this business gives it real potential to be a strong No. 2 business for the company over time.
If any signs emerge that Apple's services business is slowing down, it could raise the risk profile of Apple stock in the minds of many investors (eroding the credibility of the "diversification away from iPhone" story), ultimately leading to a lower price-to-earnings multiple for the stock.
What if Apple misjudges iPhone mix?
Another potential risk to Apple stock is that the company could misjudge the demand mix for its upcoming iPhone models.
Recall that Apple was caught off guard by the surprisingly high demand for the iPhone 7 Plus relative to its expectations. There is a chance that Apple could get caught off guard by the demand for its premium-priced iPhone compared to the cheaper models, which could have a negative near-term impact on the company's product mix and/or unit shipments.
Apple would, of course, shift its production mix to meet demand (which could lead to "make-up" revenue boosting future quarters). But until that evidence presents itself, some market participants with shorter-term time horizons may bail out on the stock.
That could introduce selling pressure, ultimately pushing the stock down. However, if that were to happen, I'd probably buy Apple stock with both hands as I patiently wait for the market to regain its senses.
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