Earnings season — Is it Time to Ditch Apple?

The past few weeks have been jam-packed with earnings calls — but on Halloween, October 31, we will see the largest number of reports at once.

If you’re an investor in Apple Inc. (NASDAQ: AAPL), you might be in for a fright, however. While the stock has shown decent performance this year, doubt seems to be crawling into Wall Street analysts — and rather rapidly. The stock is currently up +25.05% YTD.  

AAPL stock price chart, courtesy TradingView

Apple announces earnings after hours today. Although the company’s last six consecutive earnings reports were beats in terms of earnings per share (EPS) and revenue, it only outperformed consensus estimates just slightly.

For the Q4 2024 period, analysts are forecasting EPS of $1.60 — which would equate to a 15% increase year-over-year (YoY).

Although still a consensus “Buy” when looking at the 29 analysts who track and issue ratings for the stock, most of the recent price target updates see a significant downside — and even the bullish estimates are quite cautious.

Quite notably, out of the five analysts' revisions in October, four see downside in the cards for AAPL. The most commonly cited reasons are disappointing iPhone upgrade numbers, theses that the company is trading at a fair value, and the fact that the launch of Apple Intelligence will take time to provide value for the business.

Looking at valuation, the tech giant is currently trading at a P/E ratio of 35.42x — higher than both the market average of 27.11x and the consumer electronics industry average of 34.74x. This line of reasoning — that AAPL is overvalued, is further bolstered by a quite unappealing PEG ratio of 2.36x.

Debt levels have risen, as well — with the debt-to-equity ratio at 3.97, up from 2.34 five years ago. Over the course of 2024, margins have likewise increased — but only ever so slightly, increasing to 26.4% from 24.7%.

That’s one part of the picture — what about forecasts? Revenues are expected to grow 10.82% per year, versus the industry average of 10.55% and the wider market average of 9.83%.

When it comes to earnings, analysts expect to see growth of 15.02% on a yearly basis — better than the industry average of 14.78%, but lower than the wider market expectation of 18.36%.

Some might say that’s a bit underwhelming.

And according to consensus estimates, there is no underlying fundamental case to support paying for such a high P/E stock that isn’t expected to significantly outperform the market.

The stock has mirrored the performance of the S&P 500 quite closely thus far. Barring a significant upset in the form of a stellar earnings call, it’s possible that short and medium-term growth prospects could be limited. 

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