I have been bearish on Apple (AAPL, Financial) over the last few weeks. Despite the pullback in Apple’s stock, investors should continue avoiding it. Although Apple’s cheap valuation and hoard of cash makes it look like a very tempting investment, the company faces certain problems going forward. Investors are encouraged to avoid the stock and wait for a better entry point.
The iPhone 7
Apple is not an overly diverse company as the iPhone accounts for over 60% of its total sales. Hence, when sales of the iPhone fall, Apple’s stock follows. The iPhone 6S was destined to fall short of the iPhone 6S because of the lack of any new significant features, and it looks like the iPhone 7 may end up in the same way.
According to reports by Nikkei, the iPhone 7 may be a disappointment as it will not include any new groundbreaking features that make the device a must-have. Not only does the iPhone lack new features, Nikkei even claimed that the iPhone 7 will not have any major design upgrades as well. The absence of design upgrades will be very unlike Apple as the company has always improved the design in the non-S cycle of the iPhone.
It is obvious that customers will not spend hundreds of dollars on the new iPhone if it doesn’t have any new features. This is the reason why the iPhone 6S fell short of its predecessor and if reports are to be believed, the iPhone 7 will be the same.
To make matters worse for Apple, Samsung’s (XKRX:005930, Financial) Galaxy S7 has proven to be a successful product with its sales already surpassing the sales of S6 by a big margin. Given that the overall smartphone market shrunk in the first quarter, the soaring S7 sales do not bode well for the iPhone 7. Apple’s target audience will be reduced considerably due to the success of the S7. The stock has more room to fall.
Conclusion
While Apple may look attractive at the current valuation, things may soon turn worse for the stock. The falling sales of the iPhone and the potential failure of the iPhone 7 can push Apple’s stock toward the $80 mark in the coming months. Thus, investors are urged to wait on the sidelines and look for a better entry point.
