For Apple 's(NASDAQ: AAPL) important holiday quarter, management is guiding for the company's gross profit margin to drop between 160 and 210 basis points. When viewed alongside the year-over-year declines in the three quarters before it, this underwhelming guidance for the important profitability metric could be a cause for concern for some investors.
Data retrieved from Apple SEC filings for quarters shown. Quarter with an asterisk is the midpoint of management's guidance. Chart source: author.
So Apple's expected gross profit margin during the first fiscal quarter of 2017 certainly isn't anything to be excited about. But it's also not worth worrying about.
When should investors start worrying about Apple's gross profit margin? If the key metric ever begins to consistently trend downward for more than a few years, this could be more indicative of more secular negative factors, such as declining pricing power, permanently higher cost structures, or unfavorable products mix shifts, that could be here to stay.
Of course, it doesn't hurt for investors to look into quarter-to-quarter volatility of Apple's gross profit margin, given how important it is to an investing thesis in Apple stock . As a cash cow, anything that hinders the company's ability to rake in high levels of profits is worth a closer look.
In this particular case, the driving force behind Apple's lower gross profit margin doesn't look like it's a problem. Indeed, I'd argue that Apple's gross profit margin today continues to support the company's impressive ability at sustaining pricing power and scale in evolving markets.
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Daniel Sparks owns shares of Apple. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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.
