Apple (AAPL) stock rose after AAPL earnings tempered any concerns over the slowdown in China and the company’s ability to grow holiday iPhone sales against record year-over-year comparisons.
One of the biggest recent drags on AAPL stock has been uncertainty about the all-important holiday selling season because, as popular as the new iPhone 6s may be, last year’s iteration of the gadget was a monster.
Wall Street is worried that current quarter sales will only match last year’s receipts or even decline. After all, AAPL sold an astounding 74.46 million iPhones in the year-ago holiday quarter. That’s a tough level to top.
Furthermore, Apple earnings have exposure to demand from China, which has become an area of weakness for most multinationals. The Chinese economy is slowing down at a faster-than-expected rate, and the stock market cratered earlier this year. It’s only natural to expect those two forces to weigh on AAPL results.
But an interesting thing happened in the most recent quarter. Total iPhone sales in Greater China, which includes Hong Kong and Taiwan, jumped 120%. Total revenue from the region nearly doubled to $12.5 billion.
For all of China’s problems, the iPhone can’t be stopped. Every other multinational has China as a headwind, but Apple has China at its back.
The strong dollar has also been taking a serious bite out of U.S. company’s revenue. Apple wasn’t immune — forex shaved 8 percentage points, and yet the impact hardly registered with investors.
AAPL Stock Still Looks Like a Bargain
For the most recent quarter, Apple earnings came to $11.12 billion, or $1.96 per share, up from $8.47 billion, or $1.42 per share, a year ago. That exceeded the Street estimate of $1.88 a share by a wide margin, according to a survey by Thomson Reuters
Revenue expanded 22% to $51.50 billion. Analysts, on average, were looking for the top line to hit $51.11 billion.
Of course, the most important part of the Apple earnings release was its forecast for the current quarter. Analysts were expecting soft guidance at best, but AAPL topped expectations.
The holiday selling season is the big test for the newest iPhones — the iPhone 6s and 6s Plus. As noted, it’s asking a lot for those models to beat last year’s results, but Apple feels confident that it can. The company said current quarter revenue should be between $75.5 billion and $77.5 billion. That’s in line with the Street forecast of $77.17 billion.
However, AAPL is smart about lowballing its projections, so there’s every reason to believe it will deliver better-than-expected sales.
Although the iPhone 6s and 6s Plus look like they won’t explode quite like last year’s model did, they will post sales growth nonetheless. Meanwhile, the market has been marking down AAPL stock because of the Chinese economy, and yet there’s no evidence that it’s a hindrance.
It might take until next year — after AAPL publishes holiday selling season results — to convince skeptics that their fears are overblown, and that could act as a brake on AAPL stock.
Eventually, though, the sentiment has to catch up with reality, and that promises multiple expansion for this undervalued name.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
