Wall Street’s reaction to Apple Inc.’s (NASDAQ:AAPL) fiscal second quarter results was certainly lackluster, with the stock off less than 1% on the news. But then again, the shares had already staged a nice rally for the year. Note that the gain for Apple stock so far has been about 32%. So yes, it’s only natural for there to be a cooling-off period.
So what might we expecting going forward?
Well, I think it could be tough to churn out the gains, at least for the next couple quarters. If anything, Apple CEO Tim Cook provided perhaps the best reason for this: “We’re seeing what we believe to be a pause in purchases on iPhone, which we believe are due to the earlier and much more frequent reports about future iPhones.”
During the quarter, iPhone sales dropped by 1% to 50.8 million, which is a far cry from the 61.2 million phones shipped back a couple years ago. It was actually the fourth decline during the five prior quarters.
Now it should be no surprise that millions of people are eagerly awaiting the iPhone 8. The rumors about the device’s features have definitely been intriguing. Examples include an OLED display, wireless charging, augmented reality, bezel-less screens and better water-proofing. In fact, given that this is the 10-year anniversary of the iPhone, I’m sure Apple wants to make sure the latest version is standout.
While all this is great, the main issue is that the iPhone 8 will not be launched until September — and maybe even later. Keep in mind that there is quite a bit of buzz that there will be a delay. In a recent report, analysts at Cowen and Company believe that the launch date will be pushed back four to six weeks, primarily because of issues with developing the fingerprint technology.
Oh, and then there is even more dire commentary from Deutsche Bank. The conclusion is that — because of the challenges with component shortages as well as technical issues — the iPhone 8 may not hit the markets until next year!
In the meantime, there will be few catalysts to pump up Apple stock. For the most part, there will likely be an uneasy sense that the company is losing momentum. Consider that the new Samsung (OTCMKTS:SSNLF) Galaxy S8 device is gaining lots of traction, which may eat into market share.
There are also serious issues for Apple in China. During the latest quarter, revenues in the country plunged by 14% to $10.7 billion. It was the fifth straight quarter of year-over-year declines.
No doubt, there are a variety of reasons for the slowdown, such as the delay in orders ahead of the iPhone 8 and also the lengthening of the upgrade cycle. But there is something else that is perhaps more concerning — that is, the competition. Companies like Samsung, Huawei and Oppo are offering models that are decent alternatives but at lower price points.
Bottom Line on AAPL Stock
Now Apple stock is not necessarily vulnerable to a big drop. The fact is that the valuation remains at a reasonable level, despite the run-up.
Note that the forward price-to-earnings ratio is only at about 15X. By comparison, Facebook Inc (NASDAQ:FB) trades at 25X and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) is at 24X.
Besides, it seems like there will be tremendous pent-up demand for the iPhone 8. But then again, this may not matter too much, especially if there are delays. In other words, there’s probably no rush to pick-up AAPL stock right now.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
