This has been a very interesting year for Apple Inc (AAPL), to say the least. In 2015, we’ve seen the new Apple TV, the iPhone 6s, the iPad Pro and many other releases.
But that couldn’t be further from the truth — and the good news is that 2016 hasn’t yet been priced into AAPL stock.
Streaming Business Is Big for AAPL Stock
For 2016, number one on your radar should be that Apple is expected to finally step into the entertainment niche.
It’s true that iTunes has been running for many years, but this will be different. Apple is set to enter the new frontier of streaming content, both in music and TV. And that market is expected to be huge.
Apple’s approach is to make its devices so comfortable that you’ll eventually decide to do everything through them. Thus far, however, streaming music and subscription TV hasn’t been done directly though Apple. Now, as 2016 looms, Apple is ready to tie up loose ends on those two fronts. Apple is poised to compete directly with Netflix (NFLX), Amazon (AMZN) and its Amazon Prime and Spotify. But that’s not all.
The 2016 generation of Apple TV will enable TV content providers such as HBO or CNN to directly communicate with viewers. Viewers will be able to vote on a show’s popularity or comment on topics of discussion. They could even shop for items they see on TV shows.
Because the Apple TV runs on tvOS, a compatible platform to the widely used iOS, there are opportunities galore for content providers. Apple TV could reach even more of the masses, which makes it very attractive. Eventually, then, those content providers could favor Apple vs its competitors.
That is a big pie to bite on for Apple — and, of course, a big upside for AAPL stock.
iPhone 7 and the New Smaller Brother
Another anticipated release is, of course, the iPhone 7. The release is expected in September, so it will really only affect the fourth quarter.
Of course, as with previous iPhone releases, the hype will be intense. Every time a new “number” is released, a significant revamp of the iPhone is expected. That was what happened with the iPhone 5 and the iPhone 6.
If you listen to rumors, the iPhone 7 will have even more new features. Of course, that means a big wave of upgrades from other iPhone versions. What it all boils down to is a boost for AAPL stock’s Q4 revenues which is expected to surpass that of Q4 2015.
And there’s still more good news for AAPL stock in 2016. Apple is set to release a smaller version of the iPhone — a “little brother,” if you will. Like the iPhone 5, it will have a smaller screen, which is preferred by some iPhone users. However, it will keep all the bells and whistles of the newer versions. For some users, that will be the best of both worlds.
AAPL Stock: Crunching It All
If we crunch up all the news, i.e. Apple reaching new frontiers and new devices, the conclusion is clear. Revenue and net profit for AAPL stock in 2016 is expected to be higher than in 2015.
But when we look at the stock right now? The opposite is priced in.
AAPL stock’s PEG ratio, which measures how much future growth is priced in, is below 1. That means less rather than more growth is currently priced in for AAPL stock.
Examining another ratio, price to sales, which captures expected revenue growth, AAPL stock is trading at 2.8. That is well below its 3.5 average. If Apple were to return to its price-to-sales average, it could spell a 25% upside.
All of that suggests that Apple’s 2016 lineup is not priced in. Why? Perhaps because AAPL stock investors are being overly cautious. But, as usual when it comes to AAPL stock, once that cautious nature is dropped, watch out!
When investors wake up to reality they’ll pile into AAPL stock in droves.
As of this writing, Lior Alkalay did not hold a position in any of the aforementioned securities.