Yesterday’s Apple Inc. (AAPL) event seemed to inspire virtually no enthusiasm in Wall Street, at least based on yesterday’s ho-hum response in Apple stock.
Maybe that’s because AAPL had already enjoyed a nice rally of about 15% since mid-February that probably baked in iPhone SE anticipation. Or maybe that’s because the iPhone SE might seem to be more about marketing and iteration than innovation.
But today, after getting a little time to digest the news, investors are bidding Apple stock higher.
Maybe that’s because they realize that the iPhone SE could be a nice growth driver.
What the iPhone SE Can Be
First, some background on the device. The iPhone SE looks like a regular 5s – with a 4-inch screen — but it is more powerful. In fact, the innards are fairly similar to an iPhone 6s and iPhone 6S Plus. The iPhone SE will have an A9 chip for high-end graphics and video. Apple Pay will be available as well. Color choices include gold, silver, rose gold and space grey.
Apple will start taking pre-orders on Thursday, with the device shipping out on March 31.
But the most notable fact about the iPhone SE is the price tag. The 16GB iPhone SE will retail at only $399, which is the cheapest initial price ever for an iPhone.
So how does a race to the bottom drive Apple stock?
Apple certainly has plenty of experience in dealing with a maturing product (read: the iPod). To extend its life and keep revenues rolling in, AAPL pulled a ton of levers, including changing sizes, colors and price points to broaden the market appeal.
Now, the company is taking the same tack with the iPhone franchise. It already went larger with the iPhone Plus; now, it sees the value in going smaller — despite the fact that Apple shipped just 30 million 4-inch iPhones last year.
While going smaller and cheaper is a great way to go after first-time buyers domestically, the major opportunity is capitalizing on the huge markets in developing economies, especially China and India. And India may be the most important, as AAPL currently has just 2% market share in the country. According to analysis from Citigroup, the company could gin up 20 million more shipments of iPhones if it can achieve the same market share in India as it does in China.
Bottom Line for Apple Stock
Wall Street analysts have been factoring in a slowdown for AAPL. The consensus is for a grueling 10% decline in revenues for the current quarter and a 3.8% drop in the following quarter.
But even with the recent rally in AAPL stock, it looks like Wall Street still has more than compensated for the overall bearish forecast. Since summer, shares still are off 20%, and Apple is trading at just 11 times earnings.
Meanwhile, the iPhone SE could actually help perk up revenues past analysts’ marks, and other positive catalysts could very well be in the offing, such as the announcement of the iPhone 7 and perhaps a new iteration of the Apple Watch.
Apple stock might not be the super-growthy play it once was, but it’s at least back to being attractive.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
