AAPL Stock Outlook for 2016
On the whole, Apple Inc. (NASDAQ:AAPL) is in great shape at the outset of 2016. However, you wouldn’t know that from looking at the performance of AAPL stock, but there’s a difference between a stock and a company. Investors should remember that.
Apple’s share price reflects how investors feel about the company’s prospects, or to put it technically, how they calculate the net present value of Apple’s future cash flow. Obviously, the market has turned sour on the firm’s prospects, because its share price has fallen more than 22% in the last six months.
Oddly enough, this pessimism defies all the incredible developments in Apple’s underlying business. Investors are prone to overreact when their favorite metrics land short off par, but that doesn’t mean they’re right. In fact, that’s the golden opportunity for investors.
This Could Save AAPL Stock
“iPhone” sales may not be growing as well as they used to. The smartphone market is oversaturated with competition and there’s real cause to believe that Apple’s growth in the sector is done. The tablet market is headed the same way.
So, it makes sense that Apple stock is falling, right? Actually, it doesn’t.
Apple executives could see this slowdown coming from a mile away, which is why the company is expanding its portfolio so aggressively.
Analysts were pretty apathetic about the acquisition of Beats, the headphone maker that also had music streaming technology. Those investments were looked at as pet projects.
But before long, we saw Apple Music emerge from the ashes of Beats’ streaming service. In entering this new market, Apple was implicitly recognizing that it needed alternative sources of income. The company was actively growing before investors pressured it to do so.
Most investors were simply eager for more buybacks and dividends. Doling out some of Apple’s monstrous $205-billion cash pile to its investors isn’t a bad idea, but it does nothing to guarantee future performance. The firm’s share price would admittedly bounce higher, but only at the expense of the long-term.
By investing in music streaming early, Apple was able to secure more than 10 million paying customers in just six months. This kind of investment shows me the company is retaining the disruptive spirit of its late founder, Steve Jobs. (Source: “Apple’s music streaming subscribers top 10m,” Financial Times, January 10, 2016.)
Watch Out for Apple Stock in 2016
It hasn’t happened yet, but subscriber growth in Apple Music could become a leading indicator for AAPL stock. The mobile devices that used to represent a growth segment will recede into the background, forming a foundation on which Apple can build new industries.
Markets just need time to adjust to the information. It’s a myth that investors react instantly to new information. These kinds of transformative changes, where the frontiers of growth look radically different from previous eras, are hard to recognize early on.
It could be months before the market prices in Apple’s underlying strength, but I’ll bet that AAPL stock has a good chance of ending 2016 as a big winner.