Shares of Apple (AAPL) fell -0.3% in October, the third consecutive monthly decline and the longest such streak in more than a year. Apple is down -11% from a record high in July as tepid sales in China for its new iPhone models have fueled concerns about the stock’s pricey valuation. Apple will report quarterly earnings results after today’s close, and analysts expect revenue to fall -1% from the year-ago period. That would be the fourth consecutive quarter of falling revenue, the worst run since 2001.
Headwinds for Apple’s earnings have increased since it reported earnings last quarter. The rise in interest rates, tepid growth trends, a high multiple, and demand concerns for its products in China have all weighed on the stock. Baird said, “Given its China and consumer exposure, the setup for Apple certainly seems tougher this quarter. If earnings disappoint, that will carry a lot of weight for how people view the economy at large going into the end of the year.”
Investors have been buying more protection ahead of Apple’s earnings results. According to Citigroup, options positioning in Apple has become increasingly bearish in recent weeks, with the cost of put options, which protect against declines in the stock, rising compared to call options. The put-call “skew” for options contracts expiring in a month is in its 80th percentile relative to the past year. That’s more bearish relative to other S&P 500 ($SPX) (SPY) stocks.
Concerns about the demand for iPhones in China have risen, especially amid competition from Huawei Technologies. According to data from market researcher GfK, the iPhone 15 series saw a -6% decline in sales in its launch month compared with the prior year, and mobile industry tracker IDC estimates Apple’s shipments were down -4% in Q3. Meanwhile, Huawei’s new Mate 60 series smartphone recorded sales of close to 1.5 million in its launch month, more than doubling from a year ago.
Rising tensions between the U.S. and China have put Apple in a tough spot. China is expanding a ban on the use of iPhones in certain departments of government-backed agencies and state-owned enterprises. Last month, the Chinese government also launched a probe into taxes and land use at Foxconn, Apple’s most important iPhone assembler. Apple gets about 20% of its revenue from China, and virtually all the world’s iPhones are manufactured in China.
Despite recent weakness in Apple, it trades at 26.3 times forward earnings, well above its 10-year average of 18.5. CIBC Private Wealth U.S. said, “There have been a lot of warning shots in advance of Apple’s earnings report, and now it will have to prove itself.”
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