How far can Apple fall from the tree?

Since the Dow Jones (DJI) lost 38% of its value, it has bounced back at a tremendous rate. Leading the coronavirus stock rally, Apple (AAPL) shares have increased in price by 26% over the past three weeks. While great for the short-term, it's not so certain that their recent gains will be sustainable. iPhone sales account for over 50% of Apples net revenue and sales have globally decreased over the past few months.

Global business = global problems

Many industries such as retail, or food & beverage, weren't badly hit by the COVID-19 pandemic until lockdowns were put into place in March and April. Unfortunately for Apple, they were losing revenue as early as February because of their global business dealings in China.

Apple reported that their iPhones had less of a demand than usual in the Chinese market as they had to shut down 42 of their retail stores in the country. According to a Reuters report, Apple sold close to 500,000 iPhones in China this past February, which is 1.27 million less than the year before.

iPhone sales in the Chinese market isn't the only problem that the company is facing.

"Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated," Apple wrote in a statement released to investors. "As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors. The first is that worldwide iPhone supply will be temporarily constrained. While our iPhone manufacturing partner sites are located outside the Hubei province — and while all of these facilities have reopened — they are ramping up more slowly than we had anticipated."

Not only have sales decreased, but so have iPhone production numbers and shipments.

Lastly, it's important to note that the U.S. and Chinese markets aren't the only markets effected by the global pandemic. France, Italy, and Spain all went on lockdown as well. Apple had to close retail stores in Europe, which is an indicator that European sales will be down.

In December, Apple reported that the U.S. accounted for 45% of their revenue. China and Europe account for another combined 40% of revenue.

Apple has been downgraded to "sell" by analyst

Last week, Goldman Sachs said now is the time to sell Apple and estimated shares to drop 20%.

Many analysts at Goldman, led by Rod Hall, said they're predicting that Apple will struggle with sales through 2020 and have a slow recovery in 2021.

"We also assume some lingering ASP (average selling price) weakness as consumers look to economize similar to what we have seen in prior downturns," analysts wrote in a note to investors. "In addition to this we believe that Services growth slows substantially in 2021 and that Services as a percentage of revenue actually stagnates in that year."

Apple shares dropped (-1.35%) on Friday after analysts downgraded the company. Shares closed on Friday at $282.80 and that's where they're at now as the market waits to open for the week.

Technical Chart

Daily Apple Chart. Source: TradingView

Apple gained a lot traction over the past few weeks, but it's slowing up. Their daily technicals look to be headed in a downward slope, at least in the short-term. We expect shares to drop (-4.5%) this week to around the $270 price level.

The company is set to report their next quarterly earnings next week on 04/30/2020. Investors may be worried about the earnings report and pre-maturely sell their shares.

Looking forward

Apple is a great company that gets results. Their stock has proven to be a great investment and financial movers are certain that they'll recover from this setback.

Expect shares to pull back in the short-term, potentially going down to $233 this year if Goldman analysts are correct.

At Financial Movers, we love Apple. We plan on buying shares, but we're patiently waiting for a better deal to come in the following weeks.

For now, we expect Apple to fall further from the tree.

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DISCLAIMER: This article does not contain financial advice. Any and all market analysis is solely the authors opinion. Investors should do their own research before making any investment.