Apple (NASDAQ:AAPL) has been a hot stock to buy over the past year but it has been coming under pressure of late. Shares of the tech giant are down 10% in the past month. Some analysts haven’t been thrilled with the company’s recent results and outlook, and that has led to downgrades and a drop in the stock’s value.
The selloff has been significant enough that Apple’s stock is now into oversold territory, according to the Relative Strength Index (RSI). When RSI falls below 30, a stock is oversold, indicating that there has been a lot of selling activity of late. At an RSI of just under 29, this is the first time Apple’s stock has gone into oversold territory in nearly a year.
The problem with Apple’s stock is that it trades at such a high valuation and premium that investors and analysts have set high bars for the company. And last quarter, the company’s sales were down 1% year over year.
While Apple does have an incredibly strong brand, its valuation is steep, with the stock trading at 29 times earnings and a whopping 45 times its book value. Unless the company is firing on all cylinders, which clearly isn’t the case right now, it can be very difficult to justify that kind of a premium on the business.
And that’s why although the stock is oversold, I wouldn’t rush out to buy it as Apple could face more headwinds with the economy potentially slowing down in future quarters.