Investing In A Downgraded Apple (AAPL)

Apple AAPL, the world's most powerful and influential technology company was downgraded by JMP Securities from market outperform to market perform yesterday.

The analyst cited slowing sales momentum, especially at the Foxconn's Hon Hai Precision Industry that makes Apple gadgets. The analyst makes a logical connection that slowing sales growth at this Chinese company might soon signal lower revenue for Apple. Apple was last downgraded in October when analysts from Scotia Capital and Independent Research GmbH lowered its ratings.

However, not everyone agrees with this JMP analyst. Credit Suisse has initiated coverage on Apple and gives it an outperform rating with a price target of $500.

In response to the JMP downgrade of Apple, its shares fell 4.5% yesterday. Interestingly enough, iPad 2 sales over opening weekend closed higher than 1 million units, a figure which took the original iPad 28 days to attain.

What does this mean for Apple investors? Apple is a strong company, with solid financials. Apple holds much less debt than the industry, has a consistently higher profit margin over the last three years, in fact, Apple is dwarfing the industry with additional profitability measures: return on assets and return on equity.

Despite being such a strong company financially, now may not be the best entry point for an investor wishing to buy Apple stock. While Apple is a powerhouse in the industry as demonstrated by its financials, an internal analysis shows signs of a stagnation in profitability. From 2009 to 2010, profit margin and return on assets was unchanged and return on equity was only marginally higher. Another variable to consider is the fact that CEO Steve Jobs has been on medical leave since mid-January and investors may be worried about the long-term future of the tech giant.

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