A doom and gloom headline about Apple (NASDAQ:AAPL) and Apple stock caught my attention last week.

The headline was, “Apple Stock on Track for Worst Two-Day Stretch in Nearly Six Years Amid iPhone XR Concerns”

The Reality Is Much Different

Apple stock is up about 14% year to date through early morning trading today, almost three times the S&P 500’s gain in 2018.

In fact, Apple’s 2018 performance was better (as of Nov. 8) than 421 of the S&P’s 505 constituents. Moreover, AAPL is working on its third-best return over the past five years, a result I’m sure Warren Buffett is more than happy with.

Furthermore, despite all the negative sentiment about Apple’s newer, pricier iPhones, its business model is far from broken.

“The iPhone [XS] Max has been selling well and will most likely help increase [average selling price] and gross margin, but we believe it will be difficult for ASP to grow in the second half of C2019,” Rosenblatt analyst Jun Zhang wrote about the company in a Nov. 2 report in which he downgraded AAPL stock.  

If you haven’t been paying attention to where Apple’s headed as a company, you might get worried about Apple stock after reading that statement. Add in the fact that AAPL recently announced that it will no longer divulge quarterly unit sales data, and it’s understandable why some investors might have soured on Apple. 

Services Will Make Or Break Apple Stock

Those who are dialed into Tim Cook’s plans for the business understand that the iPhone is merely the conduit for generating recurring services revenues.

AAPL is most concerned about keeping owners of iPhones happy, whether they have the latest and greatest phone or own five-year-old iPhone 5Ss. 

“Our installed base is growing at double digits. And that’s probably a much more significant metric for us from an ecosystem point of view, and the customer loyalty, etc,” Cook said on Nov. 1.

“The second thing is this is a little bit like if you go to the market and you push your cart up to the cashier and she says or he says, ‘How many units you have in there?’ It doesn’t matter a lot how many units there are in there but the overall value of what’s in the cart,” the CEO added.

The reality is that any slowing of unit growth will be made up by higher prices for newer iPhones.

So, as in the case of Facebook (NASDAQ:FB), user engagement and overall happiness with the product across all iPhones will be far more critical than actual volume growth.   

Morgan Stanley analyst Katy Huberty on Nov. 7 raised her price target on AAPL stock to $253 from $226, citing its future services revenues.

“We think the market underestimates both growth and value impact of Apple’s Services business,” she wrote. “With a maturing, more-engaged iOS user base and broadening portfolio of Services, we believe Services represents the key growth driver for Apple over the next 5 years,” she added.

I couldn’t agree more.

I said as much back in February 2017, long before AAPL launched the priciest iPhones in the company’s history.

The Bottom Line on AAPL Stock

As Apple continues to be transformed by Tim Cook into a service business that also happens to make phones, some investors are going to be disgruntled.

However, for those who want to make money over the long haul, 2018, in my opinion, was a watershed year for AAPL stock.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.