I have to admit straight off the bat that I’m not too fond of writing about Apple Inc. (NASDAQ:AAPL). For starters, everyone — and I do mean everyone — has an opinion on Apple stock.
Even those that may be uninterested in the markets, or consumers who prefer products from Samsung Electronic (OTCMKTS:SSNLF) or Sony Corp (ADR) (NYSE:SNE), still seem to throw in their two cents. That’s the power of the Apple brand.
I’m not complaining. Although I have a financial interest in SNE stock, and have owned Samsung smartphones in the past, Apple products are better. Its ecosystem is seamlessly connected, and its interface is intuitive. Best of all, the company has an uncanny ability to provide solutions for which you have yet to realize is a problem. And no — finding a good-looking, untucked dress shirt is not a real problem!
The central issue I have with Apple stock is that investors may be too emotionally vested. If there’s any advice I can give, it’s that business is all about the numbers. Holding any other view could lead you down a dangerous path.
Positive Factors Buoying Apple Stock
Admittedly, Apple stock doesn’t make market agnosticism easy. The heart of the organization of course is the iPhone. Last Friday, rumors circulated that the upcoming iPhone 8 will feature better water resistance than its predecessor. The improvement could potentially allow the “8” to survive immersion greater than one meter deep. Whether the safety feature is actually useful or not, it’s a great marketing tool. Samsung initiated their waterproof model with their Galaxy GS4 Active to critical acclaim.
Of course, there’s much more to Apple’s flagship product than making it accident proof. According to InvestorPlace writer Tom Taulli, there are already “indications that the device will be standout, such as with OLED (organic light emitting diodes) screens, which will be thinner and perhaps even allow for bending. Interestingly enough, there may not even be a bezel, which will not only make the device look sleeker — one of Apple’s hallmarks — but allow more room on the screen.”
We also must consider the Apple stock price in comparative value against the broader consumer technology industry. As Taulli notes, “AAPL stock still sports a reasonable valuation, with the forward price-to-earnings ratio of 11.5X. Hey, Microsoft Corporation (NASDAQ:MSFT) is at 19X and Oracle Corporation (NYSE:ORCL) is trading at 14X.”
To go along with this analysis, you have to appreciate the creative synergy that drives Apple stock. Despite roadblocks like the Supreme Court decision that has serious implications for intellectual property rights, AAPL, and by extension, AAPL stock keeps on chugging. I don’t doubt for a second that they’ll continue asserting themselves in the retail market. They’re too much of a valuable entity for any other course of action.
Weaknesses in Apple’s Armor
Yet it’s in the financial markets where Apple stock loses some sheen. As Investor’s Business Daily wryly notes, in the same year that AAPL “opens an edifice to its greatness — a massive new headquarters that looks like a flying saucer — the company faces growing questions about its future and whether it can still surprise and delight customers with exciting new gadgets.” Furthermore, expectations are “sky-high that 2017’s 10th anniversary iPhone will be something special that unleashes the full potential of the Apple revenue-generating ecosystem.”
No one questions that AAPL stock is backed by a solid team carrying out founder Steve Jobs’ grand vision. Nevertheless, that’s a lot of pressure riding on the company. It’s a well-known fact that a majority of AAPL’s sales and profits comes from the iPhone. In fact, we are starting to see some kinks in the vaunted armor.
Again, Investor’s Business Daily writes that iPhone “sales declined last year for the first time ever, during the iPhone 6S cycle. They could fall again this year, during the iPhone 7 cycle. In fiscal 2016, iPhone unit sales declined 8%, while iPhone revenue shrank 12%.”
Furthermore, there’s an overreliance on its smartphone division that could come back to haunt them. A glaring example is the fact that Apple hasn’t done much of anything with its premium line of Mac computers. Sure, that industry is in decline, but Apple has always been chic-cool. If it’s abandoning Macs in favor of portable e-devices, it’s going to be in a dogfight with discount-price leaders.
And if it can’t protect its designs as the Supreme Court decision implies, that just makes Apple’s job all the more difficult. Hence, it either needs to kill it with its new iPhones or it needs other products for diversification.
Technical Challenges Ahead
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But Apple stock really hasn’t shown that much confidence. Yeah, it’s soared from last summer, but that’s what rallies from yearly lows are supposed to do. What happens next is the critical question.
In 2015, Apple stock took multiple bites at $130, only to be rebuffed. It then faltered, and only began to pick itself up just recently. Now, it’s heading toward another crack at the psychological price target. Is the fifth time the charm? I’m sure AAPL stock is good for another 8% or 9% — enough to get real close to $130.
But to actually breach that level and build something substantive on top of it? That’s where I have my doubts about Apple stock. What AAPL does, no one does better. But after so many years following the release of the first smart devices, the consumer is expecting much more. Apple will deliver, but what it does may not be so exciting for Wall Street.
As of this writing, Josh Enomoto was long SNE stock.
