If you are thinking about cutting your losses on Apple Inc. (NASDAQ:AAPL) stock, think again.
Apple stock might look down-and-out as growth concerns hover around its hardware business. But the company has something that could be bigger than the original “iPod.” No, I’m not talking about Apple’s moonshot projects. The company is already offering this revolutionary product and you might want to get onboard before every other investor decides to jump in.
Speaking of revolutionary companies, you might be thinking of Netflix, Inc. (NASDAQ:NFLX) with its on-demand video streaming service. Or you might be looking at Amazon.com, Inc.’s (NASDAQ:AMZN) online shopping (e-commerce) platform.
No doubt, these two companies changed their industries’ competitive landscape. Investors in Netflix and Amazon stock have also been rewarded. In fact, AMZN and NFLX stock were the biggest gainers in the S&P 500 last year.
The problem is that as their stock prices skyrocketed, valuations also shot through the roof. Today, both Netflix and Amazon carry price-to-earnings (P/E) multiples of more than 300X.
AAPL stock, on the other hand, looks much more appealing with a P/E multiple of a little more than 10. Of course, Apple bears would argue that the iPod, the iPhone, and the iPad are all old news and the company’s growth is about to slow down. But they’d be wrong, very wrong.
You see, Apple has recently stepped into another multibillion-dollar industry. And the amazing thing is that it’s already enjoying enormous growth.
This Could Be a Huge Catalyst for Apple Stock
I’m talking about “Apple Music,” the company’s music streaming service launched in June 2015.
When Apple first announced its move into the music streaming business, critics mocked the attempt. They argued that the music streaming industry was already established, with giant incumbents like Spotify running the show.
But guess what—these critics are eating their words now. Not only did Apple Music manage to survive, but it is also giving Spotify a serious run for its money.
In January, The Financial Times reported that Apple Music had achieved more than 10 million subscribers in just six months. How long did it take for Spotify to reach 10 million subscribers? A whopping six years. (Source: “Apple’s Music Streaming Subscribers Top 10M,” Financial Times, January 10, 2015.)
Mark Mulligan, music industry analyst at MIDiA Research, said that at the current growth rate, Apple could overtake Spotify and become the leading music streaming service in 2017.
Apple Music’s success reveals one of Apple’s biggest strengths: it doesn’t need the first mover advantage to succeed.
In the past, for a company to dominate an online industry, it would have to move quickly. By building a large enough userbase earlier on, the company hopes to protect itself from potential entrants.
Now imagine a company that doesn’t need the first mover advantage. Since it no longer has to be the first mover, it could save big on research and development and also learn some lessons from the pioneers.
Note that this is not the only time for Apple to pull off something like this. The company entered the smartwatch business last April with the “Apple Watch.” At that time, there were already quite a few companies making smartwatches, but Apple still managed to rise to the top.
According to Juniper Research, the Apple Watch captured more than half of 2015’s smartwatch market in less than a year of sales. (Source: “Apple Watch Claims Over 50% of 2015 Smartwatch Market in Less Than a Year of Sales,” Juniper Research, January 12, 2016.)
The Bottom Line on AAPL Stock
There you have it, when Apple announces something, it almost always turns into a huge hit. That’s something Apple’s competitors could only dream of.
Other than the booming music streaming business, there are quite a few catalysts for AAPL stock. The company is expected to launch new hardware products in March, including a more affordable “iPhone” and a new “iPad Air.” Apple is also working on its first original TV series Vital Signs, starring Dr. Dre. Moreover, the company has decided to issue bonds to boost its capital return program. (Source: “Apple Files to Sell Debt, with Maturities Out to 2046,” MarketWatch, February 16, 2016.)
Now, with so much yet to come for AAPL stock, do you really want to stand on the sidelines?