After dropping more than 25% since July 2015, Apple Inc. (NASDAQ:AAPL) stock surely looks down and out. With analysts wondering whether the success of the “iPhone” will continue into the future, investors are turning cautious, giving Apple a price-to-earnings multiple of just above 10. Note that there is another device maker that has a similar P/E ratio right now—GoPro Inc (NASDAQ: GPRO), albeit having a much more dramatic plunge in its stock price.
So, will the downward trend in Apple’s stock price continue like the one for GoPro? Not really. Here’s why.
AAPL Stock: Mass Market Success
Both Apple and GoPro make electronic devices and both have solid market shares in their respective segments, but that’s where the similarities end.
GoPro makes action cameras. And let’s be honest, there are only so many people that are going to jump off of a cliff in a wingsuit or race down a mountain on a bike. That is, GoPro has strong appeal to the adventurous type, but might not have enough appeal to the mass market at the moment. The limited market penetration level could have contributed to GoPro stock’s decline.
Apple, on the other hand, couldn’t be more different. Sure, iPhone sales are still the company’s biggest revenue source, but the fact of the matter is that instead of being a niche product, Apple’s products are ubiquitous.
To understand just how much mass market appeal Apple has, let’s take a look at the company’s performance lately. In its last fiscal quarter, Apple sold a whopping 48 million units of its iPhones, a 22% increase year-over-year. Revenue from iPhone sales grew even more, at 36% year-over-year to $32.2 billion. (Source: “Apple Reports Record Fourth Quarter Results,” Apple Inc., October 27, 2015.)
There are positive signs about Apple’s next earnings report as well. For instance, Apple absolutely dominated the holiday season in terms of device activations. According to mobile analytics firm Flurry, Apple’s products managed to account for 49.1% of device activations this holiday season. Its competitors could only dream of such market dominance: Samsung was a distant second at 19.8%, Nokia placed third with just two percent, LG had just 1.7%, while Chinese company Xiaomi had a weak 1.5%. (Source: “Report: Apple Devices, Phablets Dominate Holiday Sales,” TechCrunch, December 28, 2015.)
AAPL Stock: Monetizing on Product Upgrades
One thing that really makes Apple stand out among its competition is its ability to monetize on product upgrade cycles. Smartphone makers usually release new versions of their smartphones every year. To make money, consumers have to be willing to upgrade. On that front, no one is in better shape than Apple.