Apple Bear Holds Off on Shorting Stock Amid China Concerns: Here's Why
Apple's shares experienced a significant decline last week following reports of China's restrictions on government employees using Apple devices for work purposes. As China accounts for approximately 20% of Apple's revenue, investors have expressed concerns about the potential impact on the tech giant's business, especially with its upcoming "Wonderlust" new iPhone launch event. However, Itau BBA analyst Thiago Kapulskis, a noted Apple bear, provides insights into why he is not shorting the stock just yet.
Kapulskis points out that historically, Apple's stock trades at a price-to-earnings (P/E) ratio of around 19. However, due to the surge in iPhone demand during the Covid-19 pandemic, the stock's P/E ratio has risen to 27 times forward P/E. Additionally, Apple has reported two consecutive quarters of declining total revenues and net earnings, making its current valuation of nearly 40% growth difficult to comprehend. These factors contribute to Kapulskis' belief that the stock is overvalued and presents a reason to consider shorting it.
China's Impact and Potential Scenarios
Kapulskis speculates that headwinds from China could act as a catalyst for a sell-off. He presents two scenarios to quantify the potential impact on Apple. The first scenario considers the restrictions on China's public employees, estimating a modest impact of less than 1% on revenues. The second, more dire scenario, suggests that negative sentiment could harm Apple's broader sales in China, similar to past boycotts experienced by brands like Nike. If a similar situation were to occur, the impact on Apple's revenues could be approximately 5%.
Waiting for the "Wonderlust" Event
Despite concerns about China, Kapulskis is holding off on shorting the stock for now. He points to Apple's upcoming "Wonderlust" event, scheduled for September 12, where the company is expected to unveil its new iPhone 15, Apple Watch Series 9, an updated AirPods model, and an iPad mini 7. The trading days following such events have historically been volatile. While Bank of America analysts caution that shares may decline slightly after the event, they typically recover within 30 to 60 days. However, Kapulskis acknowledges that institutional investors have turned negative on Apple's shares, potentially limiting any upside movement for the stock.
In conclusion, despite concerns about China's restrictions and the valuation of Apple's stock, Kapulskis is holding off on shorting it, at least for now. The upcoming "Wonderlust" event and the potential for volatility in the trading days following it may impact the stock's performance. However, the majority of institutional investors hold a negative outlook on Apple's stock, reflecting a growing bearish sentiment. As the situation evolves, it will be interesting to see how these factors influence the stock's trajectory.
Conclusion: The Implications of Apple's Stock Situation for New Businesses
The recent developments surrounding Apple's stock offer a significant "hot take" for new businesses, particularly those in the tech sector or those considering investments in tech stocks. The over-reliance on China's market and the volatile trading environment following product launches present crucial considerations.
Understanding Market Dependence
For new businesses, Apple's situation underscores the importance of understanding market dependence. The impact of China's restrictions on Apple's business highlights the risks of relying heavily on a single market. Diversifying market presence can help mitigate such risks and ensure business stability.
Timing of Investments
Kapulskis' decision to hold off on shorting Apple's stock until after the "Wonderlust" event provides a lesson on the timing of investments. The volatility of trading days following major events can impact stock performance, emphasizing the need for strategic timing in investment decisions.
In conclusion, the developments surrounding Apple's stock offer valuable insights for new businesses. The importance of understanding market dependence and the timing of investments are key takeaways. As new businesses navigate their growth journey, these insights can help shape strategic decisions and potentially contribute to their success.