Apple Stock – Dead in the Water or Drop-Dead Discount? (AAPL)

Advertisement

When Wall Street’s fickleness is put on high display, this often yields opportunities to pick up bargains. This appears to be the case with Apple (AAPL), as sentiment has nosedived on concerns of slowing iPhone demand.

Apple Stock - Dead in the Water or Drop-Dead Discount? (AAPL)After hitting a 52-week high in July, Apple stock has gone on to plunge a grueling 18%.

Now there are certainly legitimate concerns for iPhone sales, such as the sputtering world economy, the impact of the U.S. dollar and the maturation of the smartphone market.

Already, analysts have put out reports showing that “channel checks” are looking kind of dour. Some are downright awful, as seen with Mizuho Securities analyst Abhey Lamba:

“It seems like March quarter procurement could end up in the low 40 millions, which would be meaningfully below current consensus sell-in number of 60 million phones.”

Given that the iPhone accounts for over two-thirds of Apple’s overall sales, it should be no surprise that the sudden lowering of estimates has taken a bite out of the Apple stock price.

But channel checks are far from accurate. After all, there were similar warnings of a slowdown in the prior quarter, yet Apple posted standout numbers.

OK, but trailing iPhone sales are not the only issue with Apple stock — some indications point to the company losing the innovation mojo acquired under Steve Jobs. Case in point, the Apple Watch, which hasn’t been as buzz worthy as the iPhone 6s. If anything, Fitbit (FIT) has stolen much of Apple’s thunder in the wearables market. On Christmas day, the company’s app hit the No. 1 spot in Apple’s App Store.

But let’s face it, innovation takes time and investment. Apple still has huge advantages to push new technologies like the Watch, and with a 20% share of the wearables market it is catching up to Fitbit’s 22% market share. Consider that Apple has a premium global brand, a network of retail stores and a robust ecosystem of suppliers and developers.

Besides, the wearables market represents a huge market opportunity. According to IDC, the number of units shipped will go from 21.3 million in 2015 to 88.3 million in 2019. Something else: The research firm believes that the Apple Watch will be dominant, with the units jumping from 13 million to 45.2 million during this period.

Bottom Line on Apple Stock

During fiscal 2015, Apple pulled off a stunning performance: Revenues increased by 27% to $233 billion and profits rose by 35% to 53.4 billion. The company sold a whopping 221 million iPhones.

So yes, it will be tough to do something similar in 2016, but the shellacking of the AAPL stock price does seem overdone. For the most part, the company is likely to have decent growth and strong profitability going into next year. There’s also potential catalysts on the product front: “The company has a healthy backlog of product refreshes coming in the next year for the Apple Watch, Apple TV, iPhone, and Mac” said Aziz Gilani, a venture partner at the Mercury Fund.

But this doesn’t seem to matter much since AAPL stock is now dirt-cheap, with the forward price-earnings ratio at only 10. Stripping out the $203 billion in cash puts that multiple at just seven times future earnings.

But things really seem out-of-whack when you make comparisons. For instance, Alphabet (GOOG, GOOGL) has a multiple that is two times the level of Apple stock, and Facebook (FB) trades at a lofty 37 times earnings. Even stodgy industrial operators like Caterpillar (CAT) sport higher multiples.

In other words, even if there is deceleration in iPhone sales, does this justify such a stark differences in the valuations? It does seem kind of, well, ridiculous. But then again, this is further evidence that AAPL stock is providing a nice entry point for investors.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/apple-stock-aapl-price-iphone/.

©2024 InvestorPlace Media, LLC