Apple Inc. (NASDAQ:AAPL) stock has just enjoyed a 15% increase in anticipation of the iPhone X, its latest release. The question remains: Where does AAPL stock go from here? In the investment world, the expression “buy the rumor, sell the news” is often spoken. In the case of AAPL, investors should probably follow the mantra of buy the anticipation, and now, sell the release.
Apple Remains Tied to Its “Why”
To be sure, Apple remains a phenomenon. Simon Sinek, in his now-famous TEDx Talk, described Apple as a company that understands their “why.” He said Apple describes itself as follows:
“Everything we do, we believe in challenging the status quo, we believe in thinking differently. The way we challenge the status quo is by making our products beautifully designed, simple to use, and user-friendly.”
Few companies understand their “why” better than Apple. Consequently, people identify with the company and care deeply about its innovations. Six years after the passing of its founder Steve Jobs, Apple maintains its following of fellow believers. As with its previous product releases, people also stood in line for hours for the iPhone X, despite the fact that it will be available a week or so later without having to wait in line.
Further, with a market cap approaching $900 billion, AAPL remains one of the largest companies in existence. Despite its size, the company still maintains impressive growth numbers. The iPhone remains Apple’s largest revenue driver. Still, other segments such as the iPad, the Mac and the Apple Watch show sales growth. Overall long-term revenue growth stands at about 8%. Due to a bump caused by a new iPhone release, analysts predict over 20% for the 2018 fiscal year.
AAPL Stock Stands at an Inflection Point
However, Apple’s inspirational message and continuous growth do not always drive the stock higher. As my colleague, Luke Lango points out, iPhone model releases have often meant a near-term top in AAPL. In 2015, following the release of the iPhone 6s, the stock had lost 25% of its value by the following summer. After the release of the iPhone 5 in 2012, AAPL stock fell by about 40% over the following six months.
Further, the PE ratio of AAPL has maintained a range over the last nine years, always fluctuating between the low 10s and low 20s. Apple’s current PE stands at 19. Unless the current pattern breaks, the PE indicates AAPL stock price appreciation is almost done for the foreseeable future.
Moreover, the company isn’t offering value outside of its legions of core believers. Regarding the product itself, the iPhone X stands up well to the competing Galaxy S8 manufactured by Samsung Electronics. However, in the minds of many, the Galaxy is a comparable product at a somewhat lower price.
Planned Obsolescence Could Cost the Company Customers
Additionally, it appears Apple has been engaging in a greater amount of planned obsolescence. This means products are designed to slow down or wear down to the point that customers purchase replacements. Customers who value owning the latest release won’t be deterred. However, customers who hope to hold on to their iPhone for several years might decide to leave the iOS ecosystem for Android.
Customers should also note that in the 1980s Apple lost the PC battle to PC clones running the Windows operating system made by Microsoft Corporation (NASDAQ:MSFT). At the time, Apple promoted exclusivity and innovated slowly.
A similar dynamic has arisen with Android, owned by Google parent Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL). In addition to Samsung, consumers can buy a phone that runs Android from Motorola Solutions Inc (NYSE:MSI), Huawei Technologies Co., Ltd., and many other companies. Today’s Apple innovates frequently, but the company could again lose customers if their exclusivity becomes overly restrictive.
Despite near-term headwinds, investors who sell at these levels should still watch the stock. The last two times AAPL stock fell into bear territory, the stock lost value until the middle of the following year before making a gradual climb to another record high. In two years, the stock will most likely be worth more than it is today. It’s the next few months that remain in question.
Final thoughts
Given AAPL stock’s historical trading pattern, the release of the latest iPhone probably indicates a sell signal. Apple has a loyal following, a high market cap at a relatively low PE and a product release that will drive revenue much higher in the near term.
However, the stock often sells off after big product releases. The iPhone, while popular, is highly comparable to Samsung’s latest Galaxy release. Also, Apple’s practice of designing products to wear down faster than necessary could harm their reputation. Hence, given the history and competitive factors, AAPL stock is one that should be avoided for now.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
