Apple Inc. (NASDAQ:AAPL) is experiencing a case of deja vu. Just when you thought it was safe to put your money back into AAPL stock, it trips up again. But what makes these sharp declines so memorable is that they’re incredibly rare. With the latest selloff, Apple has incurred only nine sessions of 1% losses or greater this year. In contrast, last year saw 39 such losses.
With so much bullishness, why can’t Apple stock punch through to all-time highs? Even the vanilla SPDR S&P 500 ETF Trust (NYSEARCA:SPY) has no problems defying gravity, despite problems like a struggling retail sector and heightening geopolitical tensions. The problem, as investors are starting to discover, is that AAPL is becoming a victim of its own success.
Just consider the recent announcement that the Nano and Shuffle — the two cheapest Apple iPod models — are discontinued. The news wasn’t a surprise. According to Bloomberg, the consumer-tech giant demoted the products to the accessory shelf within their retail stores.
Consumers no longer viewed the iPod as relevant in the age of smartphones. Why carry multiple devices when one product can serve all your digital needs? Even nagging issues that benefited the iPod, such as battery capacity, have been resolved. Anybody that uses current generation iPhones can attest to battery longevity. Such dynamics bolstered the iPhone, but what about AAPL stock?
Simply put, Apple is running out of ideas, and the markets are taking note.
What Is Apple Stock Without the iPhone?
Take a look at any article discussing AAPL stock. Whether good, bad, or indifferent, one of the main subjects that always pops up is the upcoming iPhone 8. Again, a surprise this is not. The latest iPhone consistently meets media and fan frenzy. And irrespective of potential delays, the “8” will deliver.
Unfortunately, it’s the only thing that Apple seems capable of delivering. Of course, heavy allocation towards the iPhone is not a new development. AAPL stock enjoyed immense success while its other product portfolios were assigned secondary status. However, the iconic smartphone’s achievements become relegated if it continues to marginalize, and then cannibalize its fellow products.
The iPod is older than the iPhone, yet it has achieved far less success than its younger cousin. Apple has sold 400 million iPod units, whereas the iPhone has hit the magical one billion mark. In addition, AAPL stopped making redesigns for the Nano in 2012, and the Shuffle in 2010.
Of course, I’m not blaming recent Apple stock volatility on the iPod. That would be a patently ridiculous argument. What I am saying is that investors should read between the lines. Everything is geared towards the iPhone. If, for whatever reason, the tech firm’s smartphone lineup fails to grab traction, shares will endure a beating.
The de facto leverage towards the iPhone is especially problematic in the context of peak smartphone. As the sector becomes increasingly saturated with competition, consumers are inundated with options. Samsung Electronic (OTCMKTS:SSNLF), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Nokia Oyj (ADR) (NYSE:NOK) and Sony Corp (ADR) (NYSE:SNE), to name but a few, are all competing for consumer dollars.
AAPL stock desperately needs a distinct catalyst, especially when its flagship is sinking its own fleet.
Breaking Resistance Will Be Difficult for AAPL Stock
While other factors such as anxieties over its earnings report or product delays are contributing to weakness in Apple stock, I believe the fundamental cause is a lack of great ideas. People once hung on to every word Steve Jobs uttered. Now, the sentiment is devolving to “more of the same.”
Click to Enlarge
This is obvious when you look at the company’s sales growth. On a revenue per share basis, AAPL stock peaked in 2011. While Apple continued to add to the top-line, the law of large numbers posed greater challenges. For the last six years, revenue growth is trending within a very bearish channel.
Therefore, I’m not shocked that Apple stock meets upside resistance in the markets. Accustomed to fantastic growth potential, investors want more but they’re not getting it.
Somehow, AAPL needs to find another defining product that separates it from the fray. Without it, where will the company get its growth?
The good news in all of this is that AAPL stock bulls will likely have a discounted opportunity. I don’t foresee Apple going under. But without Steve Jobs, it appears that Apple will just play it safe. That won’t please the speculators, which will cause volatility. But once the weak hands are flushed, AAPL proponents can regain control.
Josh Enomoto is long SNE.
