Barclays Lowers AAPL Rating Over Growth Concerns

Barclays analyst Ben Reitzes is lowering his rating for Apple's stock even though he's excited about some of the products the iPhone and iPad maker is developing. His concern is that new markets for the company, including wearable technology, won't do much to help boost iPhone sales.

New product categories may not help maintain iPhone sales growthAnalyst: New product categories may not help maintain iPhone sales growth

Mr. Reitzes told investors,

We believe Apple's story is all about iPhones and 'new categories' seem to be designed to make the iPhone more useful – but don't necessarily re-accelerate growth in the iPhone category to sustainable double-digit levels.

Apple has been rumored to be moving into the wearable technology market and has been hiring health and fitness experts over the past couple years, presumably to help develop devices for the category. The company's first move into the category is expected to be the iWatch, which will include some form of fitness tracking and monitoring.

According to Street Insider, Mr. Reitzes thinks Apple is facing the potential for lower margins with the launch of the next iPhone model later this year. He said, "Eventually Apple could even see margin pressures as it adds advanced new features to new iPhones at similar price points later this year and into next (things like Sapphire glass, curved glass, new batteries, etc.)."

To help drive his point home, Mr. Reitzes points to Microsoft's market cap after it became the dominant player in the PC market. From 2000 to 2010 Microsoft didn't outperform again after hitting its all time high market cap of US$620 billion in 1999. Apple's market cap has hit $650 billion, and he sees that as the company's high point.

Apple also needs to increase its research and development spending to keep up in the new Internet of Things market.

"Apple invests the smallest amount in R&D and also maintains one of the leanest opex structures. While revenue per employee is quite high – at over $2 million it is by a wide margin the highest in the group – growth seems stalled compared to Amazon, Google and Facebook," he said. "We would point to the lack of real new products of late as the reason for the growth differential – and that may be something that Apple may have to spend to fix."

Despite Mr. Barclay's concerns, Apple is still growing and the iPhone has potential to expand in a big way now that the company has all three of China's big time cell service providers as partners. Apple is also taking a more agressive iPhone growth position in other markets including India.

Mr. Reitzes lowered his rating for Apple's stock from "Overweight" to "Equalweight," but maintained his $570 target price. Apple closed on Thursday at $533.56, and was trading in the pre-market on Friday at $532.72, up 1.57 (0.30%).