Investors who started watching Apple (NASDAQ:AAPL) stock in the last two years will think that the stock corrected so sharply lower that its future is questionable. But for long-time Apple investors, the meteoric rise to $233 in 2018 and its return to the $150 level is mostly noise.
From 2012 to 2017, shares traded in the $50-$110 range. And after giving up 50 points in gains following an unexpectedly lower forecast in iPhone unit sales, what will Apple stock trade at in the next year?
Apple Stock Is Range-Bound
Apple’s bullish upside story will tug against the bearishness in its iPhone business. AAPL is clearly enjoying healthy profit margins and cash flow from its services business.
The Services unit was Apple’s best quarter ever with revenue coming in at $10 billion. This is up 27% from last year. The App Store is a resounding success story. iTunes is still making money, although Apple Music and monthly service subscription revenue is a bigger cash flow driver.
Arguing that iPhone sales are independent of the huge services business is wrong. In the near-term, existing iPhone users who delay upgrading to the next iPhone will hurt Apple’s device sales growth. This group will continue to enjoy Apple’s iCloud and Apple Music services. In the longer run, if the same user base opts for a cheaper premium Samsung (NASDAQ:SSNLF) Galaxy S10 or S11 (years later), they will leave the Apple ecosystem. This will hurt service revenue.
iPhone Sales Might Drag for a While Longer
Apple did not foresee that U.S.-China trade relations would hurt the economy for both nations. If it did, it would not have released iPhone XS, a refresh to the iPhone X, at the $999 price point. Consumers could get an Android with better specifications and double the storage at a lower price.
Apple bet that its iPhone 7 and iPhone 8 would cover the mid-range market. The problem is that a 32GB iPhone 7 for $449 is not a good enough device for iPhone 6 users. The company is nudging these users to upgrade through a trade-in program that could cut the price of an iPhone XR to $449 or an iPhone XS to $699. Unfortunately, getting the device at that low a price requires the consumer to trade in a perfect condition iPhone X.
iPad Pro and MacBook Facing Competition
Microsoft’s (NASDAQ:MSFT) wildly successful Surface Pro tablet-laptop product is giving Apple’s iPad and iPad Pro plenty of competition. Even though Apple’s iPad Pro refresh is great in its hardware specifications, the operating system is still hobbled as a mobile OS. Apple may need to consider the positive ramifications of powering the iPad with MacOS instead of iOS.
That Microsoft overtook Apple by market capitalization in recent weeks is indicative of what happens when software drives sales. Microsoft took the bold step of dumping Windows Phone. Instead, it sold millions of Office 365 subscriptions. The app is agnostic to the phone’s operating system. And when subscriptions grow, so do Microsoft’s revenue and profit margins.
Investors who have doubts about Apple could invest in BlackBerry (NYSE:BB) instead. No, BlackBerry is no longer in the smartphone business. It is pivoting the business towards software for autonomous vehicles. That market is very hot.
Nokia (NYSE:NOK) is another alternative. Again, this company is out of the smartphone business but is winning 5G network orders. As the world shuns Huawei 5G hardware, Nokia gets to pick up the business deals.
AAPL Stock Price Target for Next Year
Per Tipranks, 36 analysts covering AAPL stock have an average price target of $184, representing 21% upside. I am not so sure Apple will trade that high a year from now. Nor can it be said that the stock will fall back to its 5-year trading range, either. Chances are high that the stock won’t move either way in the next year.
If in six months, Apple manages to convince its users to trade in their old devices for the top-end model, then the stock could trade to a 15–17 times P/E, compared to 12.62 times today. In that scenario, Apple stock will close at that $184 level and above.
As of this writing, Chris Lau holds a position in Nokia stock.