Right Time to Pull Back Apple Shares and bank profit

Apple is a steadfast enterprise and has reaped nearly $40 billion in the past twelve months, not to mention, on September 9 it unveiled fresh products including the large display iPhone 6 Plus, iPhone 6 Apple Pay, and Apple Watch. 55 analysts covering Apple rate it a buy, 10 rate it a hold, and 3 rate it a sell. Believably, the analysts with he hold or sell rating are correct and at that point I would be taking profits if I were a shareholder. Not that I don’t fancy sporting Apple products, at times that can well be frustrating; it is more a function of the facts I am going to detail below as they relate to the share price which stagnates at $101.66, pretty within $2 of its all time highs.

Waning Profit margin

The graph below illustrates the downtrend in Apple’s profit margin is a since 2012. Profit margin is the ratio of net income to revenues. For every $1 of revenues Apple retains roughly $.21, which is down from $.27 cents in 2012, an apparent 22% decrease.

High profit margins denote that a company has costs within reins. Multiple reasons could attest to Apple’s inflated cost based on the suppliers that Apple uses and the logistics that piece everything together. While the graph shows Apple’s a slight improvement of .64% in 2014 profit margin, it still clearly falls below 2012 levels; it is still too early to detect if the growth is meaningful or sustainable.

Falling Return on Assets

Aside the declining profit margin since 2012, as seen in the graph, Apple’s return on assets has taken a noose dive. Return on assets illustrates the efficiency of a company in using assets to create profit; it is the ratios of dollars earned to the dollars of assets a company controls. Apple earns less on its assets, falling down to a little over 18% in 2014 from over 31% in 2012. This trend of decrease implies profitability is deteriorating.

Diminishing Market Share

The past three years has seen Apple’s iOS market share for smartphones take a downtrend, while the key competitor rise steadily. The table below shows a comparison of smartphone’s market share between Apple iOS and Android.

Evidently the consumer is ditching Apple for Android and the gap is widening. Here are a few possibilities that could be behind the exodus:

• Costly Apple products – there are a vast options of inexpensive Android smartphones in the market.
• Apple’s rigid and closed ecosystem – Android is open and has multiple manufacturers.
• Frustrating customer experience –examples, iOS is incompatible with Adobe Flash, Apple iPad lacks USB port or needs expensive proprietary connectors.
• Apple’s customization possibilities are limited compared to Android

Apple’s Lousy Product Launch

I had detailed in a previous article why the Apple’s September product launch was uninspiring and lacking of zest. Instead of unleashing groundbreaking products, Apple sought to catch up with rivals or unveil “me-too” products. For example:

• With the wide screen iPhone 6, Apple wanted to catch up with Samsung and other Android manufacturers
• The Apple Watch was a “me-too” release as five other manufacturers had already announced and showcased smartwatches.
• Apple Pay is another “me-too” unleashed late behind the Google Wallet and CurrentC.

Conclusion

To emphasize what came at the beginning of the article, Apple is a great company piling lots of cash. Based on iPhone pre-orders, current Apple consumers are definitely trading upwards for larger smartphones. However, the profit deterioration metrics, added to unstable market share and the lack of creative new products in respect to Apple’s current elevated share price predicts a notable pullback in the shares and investors taking profits.