What Apple Inc. (AAPL) Stock Needs to Make ANY Waves From Here

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AAPL stock - What Apple Inc. (AAPL) Stock Needs to Make ANY Waves From Here

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Rumor has it that Wall Street might see the newest iPad tablets from Apple Inc. (NASDAQ:AAPL) as early as next week. CEO Tim Cook remains “very bullish” on the category, but it’s going to take more than a refresh like last fall’s iPhone 7 to really move AAPL stock.

It’s going to take a revelation.

The challenge that management faces here isn’t about innovation. I’m sure the iPads will pack just enough fresh functionality — battery life, screen response, processing power — to keep the upgrade cycle rolling.

Remember, the iPhone 7 didn’t deliver any real “killer apps” beyond incremental improvements here and there, but sales in its launch quarter still spiked 5% above year-ago levels.

For tech traders who have learned to obsess over every tick on the AAPL balance sheet, that’s a product worthy of a standing ovation. A year ago, iPhone sales were flat at best, so that 5% bump was a big driver in the stock’s 30% surge since Cook announced the new release of the phones on Sept. 7.

AAPL stock chart

However, even if the new iPads perform on roughly that level, they have a much deeper decline to overcome and a much lower base to build on.

That’s why the problem for AAPL stock isn’t a problem of innovation. The most miraculous must-have tablet computer anyone in Cupertino can conceive is still a hostage to brute economic scale.

On the top line, 70% of AAPL is phones. Barely 7% of the company’s revenue comes from tablet computing, and that piece of the overall footprint has actually shrunk as media and other services push it aside. The iTunes/ApplePay/AppleCare ecosystem now plays a bigger role in the sum of the parts than all the iPads put together.

And while the service side is growing at a healthy 18%-26% per year, high-end tablet manufacturers like AAPL have struggled to hang onto the sweetest slice of a declining global market.

More sophisticated phones keep doing just about everything the tablet can do, which makes the iPad an afterthought even for affluent consumers. The world buys 9.5 smartphones for every tablet, so at least Apple’s profile here reflects patterns of global demand.

Bottom Line for AAPL Stock

Apple already faces the prospect of a long wait until the next iPhone comes out, which could be trouble enough for Apple shares.

Barring a revolutionary “one more thing” announcement, AAPL might bring enough dazzle to the iPhone to boost sales a relative 5%-10% in the current lineup. That’s still going to leave the category in a steep double-digit net decline.

And even if we get that world-changing killer app, iPad sales are going to need to double in the current quarter to push the company’s sluggish sales growth curve by 10% on their own.

If Tim Cook can do that, he’s got enough fire to keep the stock moving until the next truly disruptive product comes along. And should the new iPads kick up an extra 6 million units, the overall impact on the balance sheet will match what the iPhone 7 did for the company.

This has been a great six months for AAPL stock, but with shares testing record levels as it is, it may take a lot more than a new screen design to give us a truly satisfying encore.

Hilary Kramer is the editor of GameChangersBreakout StocksHigh Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/apple-inc-aapl-stock-needs-make-waves/.

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