The shares of Apple Inc. experienced a significant decline on Wednesday, following the recommendation from KeyBanc analyst Brandon Nispel to investors to stop buying the stock. Nispel advises that valuations are currently at near-record levels, and he predicts that iPhone sales in the United States will face challenges.
The stock, identified as AAPL, -0.78%, fell 1.1% in premarket trading, making it one of the decliners in the Dow Jones Industrial Average DJIA.
Previously holding an overweight rating for Apple, Nispel has now downgraded the technology giant to sector weight after two years.
Nispel points out that Apple’s stock is currently trading at enterprise value multiples close to all-time highs compared to operating profitability and free cash flow. He emphasizes that the stock is being valued at a substantial premium to the Nasdaq, exceeding its historical average.
Nispel also anticipates a decline in U.S. sales during Apple’s fiscal fourth quarter, which ended in September. This would mark the fourth consecutive year of declining sales during this period. He bases this prediction on his analysis of credit and debit card spending data, which indicates “modest weakness.”
Furthermore, Nispel expects soft sales from U.S. carriers as upgrade rates in the U.S. are approaching record lows. The post-paid growth environment is also slowing down, and iPhone promotions are primarily targeting higher-priced plans.
Despite the consensus on Wall Street predicting accelerating sales growth in all international markets, Nispel finds it difficult to understand why this would be the case. He argues that user growth is more crucial than unit growth, but admits that this argument may not hold weight in the near future due to a lack of catalysts. He concludes that the risk/reward balance for Apple’s stock appears neutral.
Year to date, Apple’s stock has rallied by an impressive 32.7%, outperforming both the Nasdaq Composite, which has increased by 24.8%, and the Dow, which has experienced a slight decline of 0.4%.