Over 10 million persons are taking part in the markets utilizing Robinhood, the red-hot inventory buying and selling app that was providing no-commission stock trades lengthy earlier than the main on-line brokerages adopted go well with. A number of the shares Robinhood customers have been drawn to this 12 months have been downright awful, not too shocking given the inexperience of Robinhood’s consumer base.
Robinhood customers have additionally piled into higher-quality shares that would not be misplaced in a typical retirement portfolio. The listing of the 100 hottest Robinhood shares is dotted with blue-chip corporations in addition to some broad-based exchange-traded funds.
Some of the widespread Robinhood shares is Apple (NASDAQ:AAPL). On the floor, this looks like an inexpensive decide. Apple’s iPhones are a money cow, accounting for round 40% of the U.S. smartphone market, based on Counterpoint Analysis. As soon as somebody turns into an iPhone consumer, switching prices make shifting to an Android-based machine a ache. And all these iPhone customers are potential prospects for Apple’s rising listing of companies.
It is sensible that Apple is a well-liked inventory on Robinhood. Nonetheless, anybody who thinks Apple inventory is a secure guess that may’t go fallacious could possibly be in for a giant shock. Listed here are three explanation why Apple is probably not the most effective inventory to personal.
The iPhone will not be a progress enterprise
The smartphone market in developed international locations is basically saturated. There simply aren’t many potential new prospects who do not but use a smartphone. Which means that Apple’s iPhone enterprise in these international locations is basically simply promoting present iPhone customers on new variations.
That is all nicely and good, but it surely’s not going to be a serious progress driver for Apple. Apple’s iPhone enterprise relies on the corporate convincing customers that its newest units are the following large factor. That will get tougher as smartphones get higher. 5 years in the past, the year-to-year leap in smartphone high quality was vital. In the present day, not a lot.
Sure, Apple can develop its iPhone consumer base in international locations like India the place it would not dominate the market. However these markets are brutally aggressive. Apple at present has a single-digit market share in that nation, and cheap iPhone alternate options from Chinese language producers will make it robust for the scenario to alter.
The iPhone enterprise will ebb and movement, with some 12 months’s fashions proving extra widespread than others. However it is not going to be a significant supply of progress for Apple.
Antitrust lawsuits might kill the companies progress story
Apple has been making a giant push into companies lately, promoting its consumer base on subscriptions for music, video streaming, video games, and cloud storage. The corporate even lately introduced an all-in-one subscription that bundles a lot of its companies collectively.
Providers have grow to be large enterprise for Apple. In fiscal 2020, Apple generated almost $54 billion from its companies section. Providers at the moment are the second largest income for Apple, topped solely by the iPhone.
Whereas the companies progress story sounds nice, there are a pair issues. For one, Apple generates an enormous chunk of its companies income from a take care of Alphabet‘s Google that makes Google the default search engine on iOS. This deal, which includes Google paying Apple between $eight billion and $12 billion yearly, is being focused in an antitrust lawsuit towards Google.
These funds are basically all revenue for Apple, so shedding them would take a giant chew out of the underside line. A separate antitrust lawsuit towards Apple within the U.S. could possibly be coming as nicely, targeted on the corporate’s insurance policies and charges associated to the App Retailer and funds. If Apple is compelled to cut back how a lot it costs builders or loosen its grip on app distribution or funds, the companies section will undergo.
The companies progress story for Apple might hit a brick wall if issues do not go the corporate’s method on the antitrust entrance, and earnings might plunge underneath the worst-case state of affairs.
An optimistic valuation
Regardless of a largely stagnant iPhone enterprise and a companies enterprise that is underneath assault by antitrust regulators, Apple inventory is priced for progress. Apple at present trades for round 36 instances earnings; that is down from nearer to 40 instances earnings a pair months in the past, but it surely’s increased than at some other level for the reason that monetary disaster.
Apple’s web revenue dropped 7.4% in its fiscal fourth quarter, dragged down by a slumping iPhone enterprise. Internet revenue was up simply 3.9% in fiscal 2020, regardless of sturdy demand for Mac computer systems, iPads, and different non-iPhone devices amid the pandemic. These aren’t the sorts of progress charges that scream “36 instances earnings.”
Apple is already price round $2 trillion. The expensive inventory has offered distinctive returns for shareholders up up to now, however the firm could also be too large and dealing with too many dangers to do something however disappoint traders from right here on out.