As Apple Inc. (NASDAQ:AAPL) prepares to move into its spaceship campus and announce first-quarter earnings May 2, the one thing you can say about it with confidence is that it’s all grown-up. And that’s not a good thing for AAPL stock holders.
The iPhone is mature technology, and there is no obvious follow-on, so the company is left swallowing its own suppliers for growth and hoping its cash hoard can let it get into the next big thing.
AAPL shares opened for trade April 27 just shy of all-time highs above $144. Meanwhile, the company should easily reach analyst estimates for $2.02 per share of profits on $51.61 billion in revenues, because that’s just 6% better than the company did the same quarter a year ago.
It’s when things are this good that the smart investor starts looking to see what might be wrong.
Chromolume Number Eight
Chromolume #7, from “Sunday in the Park with George,” was Stephen Sondheim’s warning against an artist becoming stale. Apple’s rumor mill is now focused on the iPhone 8, a me-too product with an edge-to-edge screen that is going to be the company’s “biggest launch ever” because so many people already have iPhones and need to upgrade.
This is the 10th anniversary of the iPhone, and rumors are flying about a more environmentally friendly version, an all-glass version and maybe a curved screen. If you just yawned, you are not alone.
This might be why our Luke Lango is worried that the stock’s valuation may be “stretched.” When products become mature margins decline, replacement cycles stretch out and reliability becomes a key value. All this has happened with the iPhone.
Analysts are still expecting a “tsunami” of upgrades to the new phone because the new screen will be more energy efficient, it will charge without wires, and it will have 3D sensors.
Maybe.
Move On
There are things Apple can do that go beyond the iPhone, things that haven’t yet been done, things that entail some risk but promise huge rewards.
But right now, it’s all rumor. Apple is reportedly starting to hire rocket scientists and could be about to join the private space race alongside SpaceX and Blue Origin. Apple is clearly working on a self-driving car and has filed an application for testing.
Apple’s biggest bet, however, is on health.
Apple is working on sensors to test blood sugar levels that will be part of a larger ecosystem of health apps that could not only go into the Apple Watch, but would be accurate enough to win regulation as medical devices.
While trackers like the Fitbit Inc (NYSE:FIT) claim to measure heart rates and sleep times, their accuracy is subject to question, and they can’t win the kind of regulatory approval that would let doctors prescribe them.
If Apple Watch applications can do that, the $300 product goes from being a luxury to a medical necessity, and tens of millions could be served.
Health care remains one-sixth of the U.S. economy, and one-tenth of the global economy. A device that cuts health care costs by managing health indicators in real-time would revolutionize the whole sector.
That seems to be CEO Tim Cook’s “holy grail.”
AAPL Stock Betting on Big
The problem for investors is that big dreams are just that — dreams. The reality of Apple today is that it’s a slow-growing, but highly profitable, mature company.
The 34% gain in AAPL stock over the past year has only given it a market-matching multiple of 17, and it is too large in its present configuration to be worth much more.
It is at this point that companies usually start to die.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he held shares of AAPL.
