Apple Inc.: Don’t Sweat AAPL Stock’s Drop on iPhone 7 Shortage

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Apple Inc.‘s (NASDAQ:AAPL) reveal of iPhone 7 was about as underwhelming as expected, and yet AAPL still expects supply issues with the new smartphone.

Apple Inc.: Don't Sweat AAPL Stock's Drop on iPhone 7 ShortageThat’s kind of weird. After all, why can’t Apple make enough phones that no one wants to buy?

OK, that’s an unfair criticism. Sorry. The latest iteration of the iPhone is indeed a big upgrade over previous models. It just lacks that “wow” factor that would make it a must-have gadget.

And, apparently, people still want to buy it. AAPL said Thursday that it will no longer report first-weekend pre-order sales data for iPhone 7 — and future iPhones, for that matter.

A cynic might say it’s because Apple doesn’t expect much from the numbers and doesn’t want to hurt the brand and AAPL stock. As for AAPL itself, the company said it’s a matter of supply stemming from the launch of the new iPhone in more countries than usual. Apple said in a statement:

“We are now at a point where we know before taking the first customer pre-order that we will sell out of iPhone 7. These initial sales will be governed by supply, not demand, and we have decided that it is no longer a representative metric for our investors and customers.”

AAPL Stock Is Even-Steven

If you take Apple at its word, this supply issue could actually help AAPL stock. It’s possible that a scarcity of iPhone 7s could give it an air of exclusivity.

Or not. You can’t grow revenue when you don’t have what you want to sell. The market appears to be going with that interpretation.

Yesterday, in wake of the iPhone 7 launch, Apple stock actually ended the session with a gain as shares took off into the close. Thursday, however, was another matter.

Apple stock fell as much as 2.5% in late morning trades. Perhaps that’s due to the supply problem with iPhone 7. Or maybe it’s just a hangover from the launch. It doesn’t really matter though because AAPL stock is hardly overpriced.

For one thing, the iPhone supply matter isn’t expected to affect the bottom line this quarter. Indeed, Apple reaffirmed its financial guidance in its iPhone 7 statement.

More importantly, AAPL stock is fairly valued on a relative valuation basis. Shares change hands at less than 12-times forward earnings. That seems about right for a company with a long-term growth rate of 8% per annum.

Moreover, AAPL stock’s forward price-to-earnings multiple is about 4% below its own five-year average. That kind of implied upside would lead most analysts to call it a hold.

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The market seems to have done a pretty good job of price discovery before the iPhone dropped. It’s interesting that AAPL stock is close to unchanged for the year-to-date. It may also be heartening to chartists that AAPL stock made a golden cross last week.

Whatever the reason for Thursday’s decline, Apple stock is not in trouble. And if the iPhone 7 turns out to be more successful that the market thinks, it has plenty of room for upside.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/09/apple-stock-aapl-iphone-7-drop/.

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