Stock Market

Apple (NASDAQ:AAPL) shares, like the overall stock market, have zoomed higher in recent weeks. Rising optimism that the Federal Reserve will soon ease on interest rate hikes has resulted in big inflows back in stocks, in particular big tech names such as AAPL stock.

But besides the possibility that the Federal Reserve carries on with raising rates to bring down, there’s another factor that perhaps leaves AAPL at risk of a big pullback. That would be the tech giant’s upcoming earnings report on Feb. 2.

The market knows full well that Apple’s results for the preceding quarters are all-but-certain to be underwhelming, compared to its numbers from prior fiscal quarters. However, investors today may be overly optimistic that today’s challenges are just about to dissipate, and a return to growth is just around the corner.

With this, I wouldn’t chase this stock’s latest rally.

AAPL Apple

Why AAPL Stock Could Dive After Earnings

Over the past few months, Apple has walked back expectations regarding its results for the December quarter. For example, in November, management warned investors via press release that, because of China’s Covid-19 lockdowns iPhone shipments will likely come in lower-than-expected during the December quarter.

In response to this and other developments, such as the overall slowdown in consumer tech spending, sell-side analysts covering AAPL stock have also walked back their respective forecasts.

So, with most expecting weak numbers out of Apple, why is the stock at risk of a post-earnings dive? Sure, often a stock can pop after delivering a subpar earnings report, simply by providing promising outlook updates. Unfortunately, I wouldn’t count on this happening.

At least, that’s the view of many analysts. In a recent research note, BofA’s Wamsi Mohan argued that updates to guidance for the current quarter, and the next few quarters, fall short of what Wall Street presently expects.

Another analyst, Bernstein’s Toni Sacconaghi, has expressed similar sentiments. If these forecasts prove correct, and Apple signals that it’s not about to turn a corner, AAPL’s latest rally could reverse course.

When Will Shares Get Back into the Fastlane?

AAPL stock may not be at risk of re-testing its lows. Even if the aforementioned scenario plays out, shares could still find support at levels slightly above the stock’s 52-week low ($124.17 per share).

That said, if Apple falls back into a slump, it may stay there for a quite some time. The current downturn in tech, and the overall economy, is likely to persist throughout most of Apple’s current fiscal year (ending Sep. 30, 2023). It may not be until the start of the 2024 fiscal year that Apple’s operating performance begins a sustainable comeback.

Not only that, although earnings could rebound in FY24, AAPL’s stock price recovery may only play out gradually. Current forecasts call for earnings growth of around 9.45% next fiscal year, and  5.4% during FY25.

As it may prove difficult for AAPL (trading for around 23.9 times earnings) to justify a higher earnings multiple with this level of growth, it may not be until two fiscal years from now (when the company is expected to earn around $7.08 per share) that the stock re-hits its all-time closing high (around $180 per share).

Bottom Line

Yes, there’s still the potential for Apple to pleasantly surprise once the economy normalizes. However, until there’s more concrete evidence this rosier scenario plays out, there’s no need to buy on the mere hopes of it happening.

It’s worth noting that it’s not just softening iPhone demand that’s affecting Apple’s current performance. The Services unit, one of the company’s emerging segments, is also experiencing a growth slowdown.

Don’t get me wrong, Apple is in a much better place than many of its peers. Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), the parent company of Google and YouTube, is contending with rising competition.

Facebook and Instagram parent Meta Platforms (NASDAQ:META) is burning through billions with its ill-timed metaverse wager.

Still, although facing fewer issues, treat this FAANG component like the others, and hold off on AAPL stock.

AAPL stock earns a D rating in Portfolio Grader.

On the date of publication, Louis Navellier had a long position in GOOG and META. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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