Is Apple Stock the Only Growth Story Left in This Market?
It’s big, liquid, not expensively priced, and pays a solid dividend—Apple Inc. (NASDAQ:AAPL) could very well be the only large-cap growth stock left in this market.
Even though earnings expectations have come down a lot this year, so far this earnings season, corporate reporting is revealing. Business conditions have slowed materially.
It’s early days this earnings season, but the numbers are soft. From information technology to railroads and food companies—real growth is nonexistent and the stronger U.S. dollar isn’t helping currency translation.
Apple stock is one of the few super large-caps holding up in this market. The company reports in just over a week and its numbers will be market-moving.
This Biggest Driver for Apple Stock Near-Term
If you delve into Apple’s Securities & Exchange Commission (SEC) filings, it’s plain to see the company’s growth driver; it’s China.
While business in the Americas (North and South America) and Europe has still been growing at a double-digit rate to date, China sales are now a quarter of Apple’s total business and this percentage is growing.
Last quarter, the company’s Greater China sales (which includes China, Hong Kong, and Taiwan) grew 112% over the same quarter last year to $13.2 billion. Global sales last quarter were $49.6 billion.
The iPhone remains Apple’s number one revenue generator, representing about 63% of total worldwide sales of all products in the company’s most recent quarter. Rising average selling prices have not hurt demand for the iPhone. Last quarter, they grew 18%, according to the company. Total quarterly dollar sales of the iPhone improved 59% over the same quarter last year to $31.4 billion.
This quarter, the Street will be focused on the company’s Chinese sales. Investors have been worried all year about slowing economic growth in the world’s second-largest economy.
The good news for Apple stock is that it is not expensively priced and the company has a load of cash on its books—$203 billion in cash, equivalents, and marketable securities, of which $181 billion (as of June 27, 2015) was stashed in foreign subsidiaries, to be exact.
If Apple doesn’t beat Wall Street consensus in its upcoming quarter, look for the company to increase its share repurchase program. Management already plans to raise its dividend on an annual basis (the last dividend increase was declared in April of 2015).
For the most part, Wall Street earnings estimates for Apple have been ticking higher for this fiscal year and next.
Financial results from large-cap technology companies have been uninspiring so far this earnings season and Apple’s numbers will no doubt anchor short-term investor sentiment.
Here’s the Bottom Line on Apple Stock
The company has a lot of options in terms of keeping shareholders happy. It can easily finance substantial dividend increases with its domestic cash flow.
Like the broader market, Apple stock has already appreciated substantially and in order for its share price to appreciate materially in this sideways market, earnings results have to surprise substantially to the upside.