Please disable Ad Blocker before you can visit the website !!!

Apple Short

by SignalFactory   ·  September 11, 2020 | 08:45:23 UTC  

Apple Short

by SignalFactory   ·  September 11, 2020 | 08:45:23 UTC  

The recent rally has not changed my stance but on the other hand, it has increased my belief that Apple is trading in a bubble (Apple is overvalued). Analysts keep raising their price targets and their estimates seem to be increasingly justified by more and more aggressive valuation multiples. In this report, we look at a recent analyst upgrade by an Apple “super-bull,” and question whether the price targets makes sense even considering the arguably optimistic assumptions. When you get too close to the sun, dangerous downside catalysts magically appear. I rate shares a sell with over 25% potential downside.

Crumbling Under the Most Bullish of Estimates:

Wedbush’s Dan Ives is known to be an Apple super-bull. He recently issued a Street-high $150 price target. That equates to a market cap of around $2.5 trillion. His bull thesis centers around a “once in a decade” opportunity for Apple to drive 350 million iPhone upgrades due to the 5G supercycle over the next 12-18 months. 350 million iPhone upgrades seem aggressive especially considering that Apple generated $142.4 billion in iPhone sales in 2019. Regardless, let us assume that Apple can really hit 350 million iPhone upgrades over the next 12-18 months. To be clear, from here on out I purposefully use overly optimistic estimates to prove my point that Apple is grossly overvalued.

9to5Mac expects the iPhone 12 to have a similar pricing model to the iPhone 11. The iPhone 11 Pro Max (the largest and most expensive iPhone offering) sells for $1,249 at the 256 GB storage category. If we assume that the average iPhone 12 sold is at a $1,249 price point, then 350 million iPhone upgrades to the iPhone 12 equate to $437 billion in revenues. Apple achieved 68% gross margins on product sales in 2020 – let us assume Apple somehow improves upon that and achieves 80% net margins on iPhone 12 sales – we arrive at $350 billion in “iPhone 12 profits.”

That is no small number and is impressive by any measure. However, Apple’s current stock price appears to more than reflect that optimism. Let us forget about Ives’ price target and use the current stock price. Apple trades at a $2.108 trillion market cap. Even if we subtract $81 billion in net cash as well as $350 billion in iPhone 12 profits as computed above, we still arrive at a market cap of $1.7 trillion.

Here is my calculated fair value estimate for Apple. Because I have a bearish tilt, I continue to use the optimistic $431 billion in net cash and iPhone 12 profits. I value services at $450 billion using a 15 times price to sales multiple. I value the products (everything else) at $765 billion using a 15 times price to earnings multiple. I arrive at a market cap of $1.6 trillion – 23.8% lower than current levels. I note that this estimate is still very optimistic because I question the validity of $350 billion in iPhone 12 profits as I detail below (among other things).

Downside Catalysts:

Because Apple’s stock trades so richly, it has become easy to name potential downside catalysts.

For starters, valuation remains a concern. I think that 350 million iPhone 12 upgrades over the next 12-18 months are far too optimistic, as 5G is not even available nationwide (why would there be a sudden urgency to upgrade your phone if you can’t use 5G service?). The 5G supercycle is overhyped – but even when we assume the overhyped 5G supercycle takes place, shares still appear far too overvalued as we saw above. I expect the iPhone 12 release to be a “sell the news” event as analyst estimates prove far too optimistic.

I expect Apple to fall victim to antitrust pressures. Epic Games has recently renewed its legal request to bring back Fortnite to the Apple store. Apple had originally removed Fortnite because it had attempted to receive user payments from within the app, where Apple cannot its typical 30% commission fee. I think that there is significant validity to the claim that Apple has abused its platform privileges in collecting its 30% fees. Not only might the additional antitrust scrutiny lead to significant multiple compression, but it may also reduce or at least significantly slow down the services’ revenue growth rate.

Because Apple has become the US’ largest company, it has become an easy target for political retaliation. If US-China tensions escalate, China may retaliate by punishing Apple’s business in the country. China is Apple’s third-largest country by revenue and therefore poses a significant risk.

Further Thoughts:

For starters, it is possible that Apple does not fall so quickly upon realizing its projected $350 billion in iPhone 12 profits. This might occur if Wall Street decides to value Apple based on the record profits. My bearish thesis rests on Wall Street being forward-looking and deciding to sell the news, I essentially see Apple selling at a single-digit earnings multiple based on record profits. It is possible that I am wrong, and Apple ends up being the exception and finds a way to avoid the forward-looking skepticism of analysts.

Second, would Buffett really sell? He is famous for “never” selling a stock. That is not to say that he has never sold a stock, however. It may be a surprise to many if Buffett really chooses to sell Apple, but I believe that Buffett will be able to identify Apple as being a bubble and will choose to not partake in bubbles. An exit by Buffett is not necessary for a steep price decline in Apple ‘s share price, but it will certainly accelerate it.


Optimism is acceptable. Irrational exuberance is not. Even using the most optimistic of assumptions of Apple’s super-bull, shares appear far too richly valued. Furthermore, Apple faces risks outside of overvaluation including antitrust issues, political risk, and the potential loss of Warren Buffett as its biggest shareholder.

Apple Short (Sell)

ENTER AT: 109.23

T.P_1: 81.75

T.P_2: 57.53

S.L: 129.40


All information on this website is of a general nature. The information is not adapted to conditions that are specific to your person or entity. The information provided can not be considered as personal, professional or legal advice or investment advice to the user. This website and all information is intended for educational purposes only and does not give financial advice. Signal Factory is not a service to provide legal and financial advice; any information provided here is only the personal opinion of the author (not advice or financial advice in any sense, and in the sense of any act, ordinance or law of any country) and must not be used for financial activities. Signal Factory does not offer, operate or provide financial, brokerage, commercial or investment services and is not a financial advisor. Rather, Signal Factory is an educational site and a platform for exchanging Forex information. Whenever information is disclosed, whether express or implied, about profit or revenue, it is not a guarantee. No method or trading system ensures that it will generate a profit, so always remember that trade can lead to a loss. Trading responsibility, whether resulting in profits or losses, is yours and you must agree not to hold Signal Factory or other information providers that are responsible in any way whatsoever. The use of the system means that the user accepts Disclaimer and Terms of Use. Signal Factory is not represented as a registered investment consultant or brokerage dealer nor offers to buy or sell any of the financial instruments mentioned in the service offered. While Signal Factory believes that the content provided is accurate, there are no explicit or implied warranties of accuracy. The information provided is believed to be reliable; Signal Factory does not guarantee the accuracy or completeness of the information provided. Third parties refer to Signal Factory to provide technology and information if a third party fails, and then there is a risk that the information may be delayed or not delivered at all. All information and comments contained on this website, including but not limited to, opinions, analyzes, news, prices, research, and general, do not constitute investment advice or an invitation to buy or sell any type of instrument. Signal Factory assumes no responsibility for any loss or damage that may result, directly or indirectly, from the use or dependence on such information. All information contained on this web site is a personal opinion or belief of the author. None of these data is a recommendation or financial advice in any sense, also within the meaning of any commercial act or law. Writers, publishers and affiliates of Signal Factory are not responsible for your trading in any way. The information and opinions contained in the site are provided for information only and for educational reasons, should never be considered as direct or indirect advice to open a trading account and / or invest money in Forex trading with any Forex company . Signal Factory assumes no responsibility for any decisions taken by the user to create a merchant account with any of the brokers listed on this website. Anyone who decides to set up a merchant account or use the services, free of charge or paid, to any of the Forex companies mentioned on this website, bears full responsibility for their actions. Any institution that offers a service and is listed on this website, including forex brokers, financial companies and other institutions, is present only for informational purposes. All ratings, ratings, banners, reviews, or other information found for any of the above-mentioned institutions are provided in a strictly objective manner and according to the best possible reflection of the materials on the official website of the company. Forex trading is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against merchants. Before each Forex investment, you should carefully consider your goals, past experience and risk level. The opinions and data contained on this site should not be considered as suggestions or advice for the sale or purchase of currency or other instruments. Past results do not show or guarantee future results. Neither Signal Factory nor its affiliates ensure the accuracy of the content provided on this Site. You explicitly agree that viewing, visiting or using this website is at your own risk.

Signal Factory is now on Telegram

make sure to join our Telegram channel now and you will not miss any update