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Analyst: Apple Investors Should Heed These Major Warning Signs

From Tony Sagami: Every one of my four children has an iPhone, but I’m a committed android (Samsung Galaxy) user.

Why? Mainly because my aging eyes prefer a bigger screen and because I’m too cheap to pay the premium prices that iPhones command.

The iPhone fans turned out in droves last week when Apple opened three new retail stores: Miami, Florida; Cologne Germany; and Nanjing, China.

Apple store openings have turned into big media events with thousands of customers eagerly waiting in line to be a part of the excitement. In China, customers started queuing on Thursday, two days BEFORE the Saturday opening.

Apple understands the gigantic opportunity in China. In 2016, it sold a whopping 476 million smartphones in China. To put that 476 million in perspective, it is 2.86 times the Apple phones sold in the U.S. market.

Moreover, the size of the smartphone market in China is huge — 33% of the world’s total sales — and it grew by 11.4% in 2016.

No wonder Apple is aggressively expanding into China. The new Nanjing store stands as its 41st foothold in the Land of the Red Dragon.

However, all those Apple stores aren’t translating into booming sales.

Apple sold 18% fewer iPhones in China in 2016 — 43.77 million — than it did in 2015. And it saw market share slide to less than 10%, making it only the fifth-largest mobile-phone seller in China.

Yes…fifth place! After…

  • 1st Place: Hauwei, which sold 2.02 million units in January alone and which has an impressive 23% of the Chinese market.
  • 2nd Place: Oppo.
  • 3rd Place: Vivo.
  • 4th Place: Xiaomi.

Huawei, Oppo, Vivo and Xiaomi have a combined market share of 55.5%.

The reasons for Apple’s struggle are simple: China is full of cost-conscious consumers, like me, and all of the above four companies offer substantially cheaper smartphones.

In general terms, Chinese smartphones offer approximately the same level of technology and features for half the price of an iPhone.

Yup … half the price.

My point is that Apple is doing very poorly in the largest, most-important smartphone market in the world. And that has some serious long-term implications for Apple investors.

If you own Apple shares, you should consider the following:

Trouble Sign #1: Apple shares have appreciated by more than 30% (market cap gain of $150 billion!) since Samsung’s phones started catching on fire. Samsung’s global sales fell from 83.8 million to 72.5 million in the last year. But Samsung will return to recover some of its lost market share and that is going to put even more pressure on Apple.

Trouble Sign #2: Apple is spending about $6 billion a quarter to buy back its stock. Hey, there’s nothing fundamentally wrong with stock buybacks. Heck, I think they’re great! However, a thriving tech innovator grows its profits through rising sales, not a falling share count.

Trouble Sign #3: The once red-hot iPad isn’t so hot anymore. Sales of iPad fell to 13.1 million in the fourth quarter from 16.1 million during the same period a year earlier, an 18.6% decline.

Moreover, sales are so bad that Apple chopped prices in desperation to goose sales.

Trouble Sign #4: Did you know that Al Gore sits on the Apple board of directors? And did you know that Gore sold $29 million worth of his Apple stock in February?

I’m not talking about an inconsequential number of shares, either. Gore sold 215,437 shares and now owns 230,137 shares, which means that he sold almost 50% of what he owned. Whenever an insider dumps half of his stock … pay attention!

Trouble Sign #5: $5 billion for headquarters … really? Apple will soon open its new 2.8 million-square-foot, ring-shaped headquarters. I’m sure the millennials will love this new high-tech campus … but come on! $5 billion for a building?!

Trouble Sign #6: Over the past 12 months, Apple reported per-share-earnings of $8.35, which means that it is now selling for 17-times earnings. That may not sound expensive, but it is the most richly valued that Apple has been in the last five years.

If you are an Apple investor, I’m not suggesting that you rush out and sell all your Apple shares tomorrow morning. What I am saying is that Apple isn’t the red-hot growth stock that it used to be and that smart investors should have a strategy to protect their gains if more signs of trouble continue to pop up.

The mobile, smartphone market isn’t dead. Quite the contrary; it is going to explode, but Apple is far from the best way to invest in it.

Apple Inc. (NASDAQ:AAPL) fell $0.4 (-0.28%) in premarket trading Friday. Year-to-date, AAPL has gained 24.27%, versus a 5.71% rise in the benchmark S&P 500 index during the same period.

This article is brought to you courtesy of Money And Markets.

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