Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

We're still a day away from getting earnings news from Apple (AAPL -2.19%) -- but one analyst isn't waiting for the shoe to drop. This morning, Canadian investment bank BMO Capital announced it is downgrading Apple -- ahead of earnings, but not necessarily because of what it thinks Apple earned.

Here are the three things you need to know.

iPhone X, lying flat

Image source: Getty Images.

1. Headline news

Let's start with the basics. BMO Capital lowered its outperform rating on Apple to market perform, and cut its price target on Apple stock by nearly 20%, to $162 per share. If BMO's right, that means that Apple at $167 and change today is selling for about 3% more than the stock is worth.

2. Blame the iPhone X

Not coincidentally, this same morning we read in the pages of The Wall Street Journal (subscription required) that Apple is having trouble getting its fans to ante up $999 to buy its top-of-the-line iPhone X.

Apple initially planned to build 40 million iPhone Xs in Q1 2018, says the Journal. Instead, demand for the device has been so weak that Apple is cutting that production target in half, to just 20 million phones. (The situation could be even worse than that. WSJ quotes other sources saying that Apple has cut component orders for iPhone X by 60%, implying Apple could be missing its sales target by more than half.)

3. But don't blame only the iPhone X

BMO believes that "order cuts for iPhone X" "will push [sales] estimates lower for March and beyond" at Apple. But BMO sees even bigger problems ahead for Apple stock than simply one underwhelming product launch.

As the analyst explains, Apple's failure to get consumers to pay $999 for a smartphone may mark a "secular change" in Apple's business model that depends on convincing consumers (many of whom already own iPhones) to buy ever-pricier models. In BMO's view, iPhones as a family of devices may be approaching, or may even have reached, a ceiling at which "prices will plateau as with the rest of the industry."

Bonus thing: What it means for investors

If this is the case, then going forward, Apple may need to rely on selling more iPhone units to grow its profits, rather than selling mostly replacement iPhones at ever-higher prices. That could be a problem as BMO also notes that Apple may be losing share in the important Chinese market. BMO believes that in the December quarter that Apple will report on tomorrow, iPhone sales were flat (by dollar value), and shipments down 9% (by units).

What will happen if BMO is right -- if Apple is no longer able to hike prices but must rather "plateau" them on falling unit sales? And what will happen if this trend expands beyond China to the world at large?

Even with higher prices (which BMO notes have been climbing steadily for "10 years"), it's worth pointing out that Apple's gross, operating, and net margins all began falling about two years ago. Annual operating margin has taken a particular hit, declining 370 basis points since fiscal 2015. Data from S&P Global Market Intelligence show operating margin was 30.5% that year, but fell to just 26.8% in fiscal 2017 (which ended last quarter) -- and are far below the 35%-ish margins seen in Apple's heyday in 2012.

If BMO is right, Apple may have trouble using higher prices to counter this trend of declining profit margin. If BMO is right, Apple stock may have finally peaked.