Apple shares fell on Tuesday after HSBC downgraded the stock, citing too much dependence on a single product and slowing emerging markets economies.
HSBC downgraded Apple to hold from buy and cut its 12-month price target to $200 from $205. Apple shares fell 1.6 percent in premarket trading Tuesday, adding to an 18 percent decline already for this quarter.
The note from a team of analysts at the firm stated:
"Apple's iconic hardware unit growth is broadly over for now. Revenues are only supported by higher selling prices and by the development of services. Flat unit growth has hit Apple's share price and incidentally its key suppliers. What has made the success of Apple, a concentrated portfolio of highly desirable (and pricy) products is now facing the reality of market saturation."
HSBC also went into an in-depth analysis of whether Apple should trade at a higher earnings multiple inline with stocks that sell luxury goods. It concluded that Apple's shares are not 'particularly expensive' but don't deserve a higher multiple associated with luxury brands.
And if it's multiple won't expand, there isn't any other way to justify a higher stock price since earnings and revenue growth is likely to slow.
"As Apple moves from very high double-digit revenue growth to a more pedestrian mid single-digit (both top and bottom line), the slowdown in the second derivative of growth will weigh on the stock's investment case," stated the note. "While we understand the company's interest of not disclosing unit sales of hardware and focusing more on service gross margin, investor enthusiasm could be the victim of a lengthy transition phase as the focus shifts."
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