Apple Inc. (NASDAQ:AAPL) has gotten off to a bad start in September. Not even its flashy launch event was enough to help things, as AAPL stock is off about 6.5% for the month so far.
Despite all this, I think the shares are still an attractive play right now. Let’s face it: the recent weakness in AAPL stock is partly due to profit-taking, as the company has racked up strong gains for 2017. It is also important to note that there has been pressure on other mega-tech operators, such as Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB).
Now this is not to say that there are no risks. It appears that the reception for the iPhone 8 and Plus has been underwhelming. It certainly does not help that these devices have only minor changes from prior models.
The Wall Street Journal’s Geoffrey Fowler had a good way of summing things up: “The iPhone 8 reminds me of the fifth Transformers movie — you know it’s new, though you can’t for the life of you figure out how it’s different. On its face, the 8 looks like an iPhone from 2014.”
Yikes!
Yet investors in AAPL stock should still not push the panic button. The iPhone 8 models are still standout devices and should be a good upgrade for those who currently own an iPhone 6 or lower.
AAPL Stock and the iPhone X
For the most part, the success of AAPL stock is tied to the iPhone X. As seen at the launch event, the device has some compelling features, such as a 5.8-inch Super Retina display with an OLED panel; Dolby Vision; AR (augmented reality) capabilities; face ID (for the use of facial recognition for secure logins); a new, dual 12-megapixal rear camera system; and way-cool animoji in messages. Oh, and the battery life is two hours longer.
So, is all this worth the $1,000+ price tag? It’s tough to say. But, then again, AAPL seems convinced. After all, during the latest earnings report, the company posted solid guidance of $49 billion to $52 billion for the current quarter.
There is also positive anecdotal evidence.
According to a survey from Raymond James’ Tavis McCourt, there is “surprising demand for the X over the 8 given the price differential and lack of killer app.” He also reaffirmed his “outperform” rating and increased his price target on AAPL stock by $10, to $180. This implies a return of 17%.
While he is not projecting a “supercycle,” he still believes that the premium pricing will bolster revenues and margins. This is the case even though he is predicting the fiscal 2018 iPhone shipments will come to 240 million, which is 20 million less than his previous forecast.
OK then, but what about the rumors of delays for the iPhone X? Well, this kind of chatter is common with the company’s launches. In light of AAPL’s focus on secrecy, it can be tough to gauge things.
But if the demand is strong, it seems reasonable that customers will be willing to wait. Interestingly enough, the scarcity may help to stoke even more enthusiasm for the device.
Bottom Line on the AAPL Stock Price
Even with a 32% run-up in the AAPL share price, the valuation is still at reasonable levels. Consider that the forward price-to-earnings ratio is 14. This compares to a multiple of 20 for the S&P 500. And the AAPL stock price is also at a discount to the other large tech operators like FB, GOOGL and Netflix, Inc. (NASDAQ:NFLX).
Now, this is not to say that AAPL stock will not be without any volatility. Granted, things will be in limbo until the iPhone X hits the market in early November. But for the most part, the device does look like a standout and has a good chance of lifting the growth ramp for the company.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO Strategies, All 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.
