Here’s a New Reason to Be Bullish on AAPL Stock
Apple Inc. (NASDAQ:AAPL) nudged market sentiment on its most recent quarterly earnings report by outperforming today and lowering expectations for tomorrow. AAPL stock reaped the rewards, jumping 2.02% in early Wednesday trading. But the real question is if AAPL continue to soar.
If this fourth-quarter earnings report was any indication, then yes. Apple stock started climbing out of a three-month dip as revenue and earnings beat Wall Street expectations. But not everything was sunshine and rainbows for the AAPL stock.
Yes, investors wrongly assumed a Chinese economic slowdown would devastate Apple stock. That pessimism was unfounded, as nearly half of Apple’s sales came from China, Taiwan, and Hong Kong. But once again, that doesn’t mean the stock is out of the woods.
Sales of iPhones and iPads were lower than expected, raising some concerns about the long-term outlook of Apple stock. Not to mention that guidance for sales in 2016 were very modest, giving the impression that Apple stock will cool its jets.
Let’s take a closer look.
Is AAPL Stock Hitting a Plateau?
Apple stock delivered $1.96 of earnings per share, about 4.26% higher than Wall Street forecasts. The higher earnings were directly related to the improved revenue figures, up $51.5 billion. Wall Street analysts had only predicted $50.0 billion from the stock. (Source: Apple Inc. Form 8-K Filing, Securities & Exchange Commission, October 27, 2015.)
Unfortunately, the value of AAPL stock depends heavily revenue from the iPhone. Smartphone sales composed 63% of total revenues, or roughly $32.2 billion. While iPhone sales were up 22% from the previous year, they fell short of market expectations by 460,000 units.
You think Apple stock would be hurt a little bit on that news, but no. At least iPhone sales were still rising year-over-year. The iPad is a different story; unit sales slipped 20% from the previous year, bringing in only $4.3 billion in revenue. And yet the net impact of this earnings report was positive for.
This is yet another example of the market looking at a stock (in this case Apple’s) through a short-term window. Investors turn a blind eye to the long-term outlook of a company, despite the obvious signs. The stock will be weighed down by declining sales in its most important segments. That’s what the data shows us.
Looking Ahead for AAPL Stock
The success story of AAPL has slipped into legend, having been immortalized by the death of Steve Jobs. This month, yet another movie was released about the Apple founder, bolstering a vague notion that Apple stock is invulnerable to market norms.
It’s true that investors would extend more leeway to Apple than they might to lesser-known companies. But at the same time, investors expect a higher standard of performance from AAPL stock than they do other firms.
There’s continuous pressure on Apple to continue financial growth and pursue moonshot innovations simultaneously. Wall Street wants to see quarterly numbers that soothe their fears, but they also want long-term visions that excite them. Apple stock is caught between these often conflicting ambitions.
So to put it mildly, Apple stock may suffer down the road because Wall Street keeps asking: what’s the point of having our cake if we can’t eat it, too?