Without Fresh Ideas, Apple Stock Is a Risk Ahead of Earnings

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How much bad news can a publicly traded company absorb before it's baked into the share price? For me, that's the number one question that Apple (NASDAQ: AAPL ) must answer. Ahead of its first-quarter 2019 earnings report, Apple stock has enjoyed a burst of optimism. However, can this rally sustain itself after the financial disclosure?

On the surface, the iconic consumer-electronics firm enjoys many tailwinds. Despite some recent troubles, its flagship product, the iPhone, still maintains significant influence. In addition, after selling more than one billion iPhones worldwide, Apple's services division should have ample revenue-generating opportunities. This presents an obvious boost for AAPL stock.

Moreover, the company has a long, proven track record from coming back from behind. Most recently, Apple stock slipped over a one-year period between the summer seasons of 2015 and 2016. However, that proved to be a ridiculously awesome buying opportunity.

Adding to the speculative enthusiasm, AAPL stock lost roughly 30% during the aforementioned period. In contrast, shares lost the same amount in the final quarter of 2018. Plus, as The Wall Street Journal implies, the bar is now set very low for the company. All management must do is not disclose completely terrible numbers.

Unfortunately, the markets may not make things that easy for Apple stock. In a rare act of concession, the leadership team earlier this month warned about revenue shortfalls. While shocking, the announcement wasn't really surprising: the company has endured troubles generating interest with their latest iPhone releases.

Now, we're seeing just how devastating the U.S.-China trade war has been on the electronics giant. Research firm Strategy Analytics disclosed that iPhone shipments to China dropped 22% in Q4 . With such a steep decline, should investors gamble on the upcoming AAPL earnings report?

Apple Stock Has Nowhere to Hide

MarketWatch reporter Emily Bary bluntly stated that the AAPL earnings for Q4 "could be the first chapter in an increasingly boring story ." Not only do I agree, I'll go a step further: this is perhaps the first time that key profitability and growth metrics don't matter for Apple stock.

Let me explain. Based on management's deer-in-the-headlights look when they essentially admitted defeat, we know the numbers will disappoint badly. Analysts adjusted down the consensus earnings per share target to $4.17 from $4.66. For revenue, the forecast dropped to $84.6 billion from $89 billion to $93 billion.

Even if the embattled company beat both estimates, it likely won't move the needle for AAPL stock. Why? Because the iPhone implosion was never about China. They just happened to represent a convenient scapegoat. No, the real problem is that Apple doesn't have any great ideas.

About a year-and-a-half ago, I warned that the company must contend with "peak smartphone." Admittedly, Apple stock jumped higher shortly after I wrote that piece. Interestingly, though, shares have now fallen near the point of the publication date.

This tells me that fundamentally, AAPL stock went way ahead of itself. Valuations kept rising without management addressing their future strategy. So in light of multiple data points indicating peak smartphone, what did Apple do? They released another smartphone.

At the very least, they should have introduced a compelling iPhone. But here again, they failed. What makes this failure dangerous is that it opens the door to the competition.

For instance, Sony (NYSE: SNE ) could never compete with Apple in the Steve Jobs era. Today, they've launched a fresh take on the tired smartphone platform. While they're pressuring the iPhone, Sony can simultaneously attack a weakened Apple through its massive content umbrella .

AAPL Earnings Needs a Gamechanger

I'm not sure if Apple's leadership team can do anything to generate positive momentum from the AAPL earnings report. If there's any hope, they've got to introduce a game-changing idea.

Of course, the problem is that they have produced few convincing successes outside the iPhone. Most notably, their venture into the smart-speaker industry didn't go over so well. Both Amazon (NASDAQ: AMZN ) and Alphabet (NASDAQ: GOOG , NASDAQ: GOOGL ) remain the sector's top dogs. Other products, such as the iPad, have largely faded from importance .

True, Apple can move into the original-content space, to which they made some rumblings last year. However, such a move is doubly problematic. First, they're well behind the curve against their rivals. Second, the low-hanging fruit is gone. The arena has become increasingly competitive and consolidated.

Ultimately, the iPhone fallout has exposed how vulnerable Apple stock is. Without their starting quarterback, they better have someone that can come off the bench firing on all cylinders. Otherwise, it's going to be a long year.

As of this writing, Josh Enomoto was long SNE.

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The post Without Fresh Ideas, Apple Stock Is a Risk Ahead of Earnings appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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