Apple's stock is facing its toughest stretch in years, and the problem is not just the phone. It is the price of the phone.
Jefferies cut its rating on Apple to underperform on Monday, bringing the total number of sell-equivalent ratings on the stock to six. That is the most since 2012. The worry, according to analyst Edison Lee, is that Apple has run out of ways to make iPhones more expensive without losing customers.
Apple has been trying to push iPhone prices higher for years. The trick is giving people a reason to pay more, usually with a fresh design or a flashy new feature.
Lee's supply chain checks revealed that Apple quietly cancelled its planned 20th anniversary all-glass iPhone model. The cancellation is a big deal because that phone was supposed to be the excuse for a higher price tag.
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"This shows that introducing new form factors in the iPhone to drive higher ASP is more difficult than expected," Lee wrote. ASP is average selling price, which is just a fancy way of saying what customers pay on average for a phone.
Lee said the foldable iPhone "will now be the only key driver of higher ASP and margin." But there is a catch: rising costs for components like memory chips will force Apple to price the foldable very high. And at that price, Lee said, "we still believe such an expensive phone would be a niche product." In plain terms, a phone so expensive that it only appeals to a small group of buyers.
Apple's stock closed at $313.33 on Friday, so the new Jefferies price target is below that closing price.
Following the announcement, shares declined by 1.3% in Monday's premarket session. It is already sitting about 8% below its recent peak, which came right after Apple's quarterly results. Those results included a weak sales forecast because of component shortages, and the stock has been sliding ever since.
Jefferies is not alone in its skepticism. KeyBanc cut Apple to underweight last month, also citing demand and valuation concerns. The average analyst rating is currently 3.88 out of 5, a low not seen in five years.
Less than six in ten analysts have a buy recommendation. For context, more than 90% of analysts recommend buying Microsoft, Amazon, and Nvidia.
The bottom line: Apple is no longer getting the benefit of the doubt from Wall Street. The market is waiting to see actual proof that the foldable phone can sell at a price that makes sense for Apple's profits.
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