The market has been bearish on tech giant Apple (AAPL +0.02%) of late as concerns are rising that its growth rate and margins may come under pressure in its upcoming quarters. The reason? The company is raising prices on its popular products in response to soaring memory prices, as companies such as Micron Technology benefit from insatiable demand.
While Micron is a big winner from such a trend, Apple may end up losing big from it. While the price increases can help it offset the rising memory costs, the risk is that its already expensive products may become even more unaffordable for consumers.
Does this spell trouble for Apple's stock, and is it better to ditch it now, or does its reduced value make it a more attractive long-term buy?
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Is Apple in a bad spot right now?
Apple CEO Tim Cook has been raising the alarm over rising costs. MacBook and iPad prices are rising, in some cases by hundreds of dollars, to offset rising costs. What's troubling is that this may not be the end. The company says "the consumer electronics industry is facing an unprecedented challenge" and that "we have never seen a component price increase this much, this quickly."
It's a bit surprising to see such a panic, especially given that Apple's margins have been fairly strong in recent years.
AAPL Gross Profit Margin (Quarterly) data by YCharts
The big question going into the company's next quarterly earnings report will be just how much of a dent there will be in its margins. The gravity of the company's statements suggests they will be significant. What's even more concerning is that the shortage in memory products isn't ending anytime soon, and thus, costs may continue to rise for Apple; this is not an isolated event that will only impact a single quarter. And if the company has to raise iPhone prices as well, that could devastate demand for its flagship products.
NASDAQ: AAPL
Key Data Points
Apple stock is down, but is it worth buying?
Shares of Apple have fallen by around 10% in just the past month, which, for the tech giant, is a fairly big decline. Overall, however, it's still up around 4% since the start of the year. Investors have been bearish on the stock, but with its price-to-earnings multiple still fairly high at 34, it hasn't exactly become a bargain buy.
I'd hold off on making a decision on Apple until after it reports its latest earnings numbers, to see just how much rising memory prices have impacted its margins. If the effect is truly as bad as what management has suggested, there could be more downward pressure on the stock in the future. At this stage, however, I don't think its value is low enough to compensate for the potential risk and uncertainty ahead; I wouldn't rush to buy it right now.
