Apple Stock Needs India to Drive Growth (AAPL)

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Apple (AAPL) sure seems to be taking its sweet time with penetrating India, the world’s second largest region by population. Earlier this year NDTV Gadgets reported that AAPL was planning to sell its iPhones in 500 stores across 12 Indian cities, none of which were Apple stores, but rather the store front of existing retailers.

Apple Stock Needs India to Drive Growth (AAPL)It doesn’t seem like an aggressive move for Apple to put its future in India in the hands of impartial retailers, but I suppose it’s a start for Apple to boost its seemingly pathetic 2% market share in the region.

That said, Apple doesn’t seem to be showing a great sense of urgency in India, despite the fact recent data from IDC illustrates why India should be priority No. 1 for Apple.

What Data?

IDC figures that smartphone sales in India surged 21.4% during the third quarter of this year, with total shipments of 28.3 million units. This makes India the fastest growing large region for smartphone shipments by a mile.

In comparison, North American shipments reportedly rose just 5.5% during Q3, aided by iPhone 6s and 6s Plus demand. And while China’s shipments more than doubled that of North America (at 98 million), unit growth slowed to just 5.8% from the double-digit growth we have seen in years past.

Albeit, India’s smartphone market is about half the size of North America by shipment volume, but it is expected to surpass the U.S. in shipments by 2017. Strategy Analytics estimates that shipments in India will reach 118 million this year, 149 million next year and then surpass the U.S. with 174 million in 2017.

This growth will occur as the research firm expects the number of middle class consumers to rise from 50 million to more than 580 million over the next 10 years.

Why Apple Must Penetrate India

Collectively, this research explains why India is so important for Apple. Over the last year, much of Apple’s growth was driven by China; and while the company continues to gain market share, the smartphone market in China is decelerating rapidly.

That said, with a low single-digit share of the Indian market, it seems feasible that Apple would be able to increase its presence in the region with rapid growth that exceeds the industry’s growth.

Given the expectations surrounding India, including its growth and how large it will ultimately become, AAPL could very well find China-like growth for many years to come. If so, Apple stock will surge. Keep in mind, Apple created 25% of last quarter revenue in China after seeing sales double year-over-year to $12.5 billion.

In other words, if Apple can penetrate India, and exceed the industry’s growth rate to grab a double-digit share of the market, then it could drive Apple stock significantly higher. AAPL could potentially add another $10 billion in quarterly revenue three to five years from now if this scenario plays out;

What India Means for Apple Stock

All things considered, I think it is a far more likely scenario that AAPL gains market share and adds billions of dollars annually from product sales in India vs. the alternative.

In retrospect, there are lots of similarities between India and China: both are nearly the same size, have seen a sudden growth spurt and both welcomed Apple late in the game. Keep in mind that Samsung (SSNLF) dominated both China (then) and India (now) prior to Apple’s penetration into the market. Therefore, investors should feel confident that Apple can and will perform well in India.

However, Apple needs to act fast! If IDC’s data proves anything, it is that the smartphone market is already taking off in India, and AAPL needs to go ahead and make its mark before it becomes the second largest region by shipments.

With Apple stock trading at just nine times next year’s earnings minus cash, it does not appear that Apple stock is priced for success in India. This means that strong performance in India would be great for AAPL and drive growth for many years to come.

As of this writing, Brian Nichols was long AAPL. 

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/apple-stock-aapl-india-idc/.

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