And the hits to Apple (AAPL +1.08%) stock just keep on coming. On Monday, investment bank Morgan Stanley was the latest to warn that all is not well in Cupertino.
Cutting Apple stock's price target from $220 to $210, Morgan Stanley analyst Erik Woodring predicted that when the company reports second-quarter earnings next week, it will beat expectations for both sales and earnings. That's the good news. The bad news is that Apple will probably guide 4% below Wall Street predictions.
And that could cause a sell-off.
NASDAQ: AAPL
Key Data Points
Is Apple stock a buy?
Why does Woodring think this? China is one reason. Apple gets 19% of its revenue from China, but iPhone sales are skidding over there, and that's going to hurt both Apple's revenue and profits. Artificial intelligence (AI) is another reason. Apple hasn't announced a great generative AI product of its own, and had to ask Google for help with that. These factors could force Apple to downplay third-quarter expectations in its report.
It's worth noting: Woodring doesn't think this is a reason to sell Apple stock. On the contrary, he rates Apple overweight and thinks you should buy it eventually. If Q2 earnings spark a sell-off, but Apple later announces exciting new AI functionality in its new iPhones -- perhaps at the Worldwide Developer Conference in June -- this could create a stock-boosting short squeeze in Apple shares.
Hence his advice: Wait for earnings. Wait for the sell-off. And then buy Apple stock.
Is this good advice?
I've said it before and I'll say it again: At 26 times earnings, and with free cash flow recently falling below reported net income, Apple is not a cheap stock. Furthermore, few analysts think a giant like Apple will be able to grow its earnings quickly -- no more than maybe 10% per year over the next five years. That works out to a fairly lofty PEG ratio of 2.5.
Based on these numbers, I don't think Apple stock is a buy today. But like Woodring says: Check back after earnings!
