- Apple needs a Christmas surprise on January 27 for its stock to rise.
- Apple has done all the obvious things it can do to raise shareholder value.
- Revenues are just $40 billion short of Wal-Mart, the world's biggest retailer.
For Apple (NASDAQ:AAPL) the company, 2015 was a very good year.
Apple's Revenues for the year ending in September were up 27% over a year earlier, at $233 billion. Profits were up even more, 35%, to $53.4 billion. The dividend got a hike of 9%, to $1.98/share.
And the stock did nothing. As this was written, on December 23, Apple stock was down 2% for the year.
Analysts still love Apple stock. Of the 50 currently following it, 38 have it rated at “buy” and only one is calling it a sell.
Still, there it sits, going nowhere apparently, and with a yield of just 1.92% you can do better with a U.S. 10-year bond, tax-free.
What’s wrong with the Apple stock? Has the law of large numbers finally caught up with Apple?
In a way, yes. CEO Tim Cook has done all the obvious things a CEO does to boost stock price – dividends, buybacks, and a 2014 stock split. All that is baked into today’s stock price. And stocks tend to move based less on what they have done in the past than what investors expect them to do in the future, to which the answer these days is – what else CAN they possibly do?
At this point, the bears pounce. They conduct “channel checks” (which have proven inaccurate in the past) and say the iPhone has peaked. They note that iPad sales are slowing, and then call the company far too dependent on the iPhone. The rest of the company is so small, relative to the iPhone, that they call it irrelevant.
It’s true that iPhone sales peaked in the first quarter of this fiscal year (last Christmas) at 74.5 million units.
The iPhone is the wonder of the age, shipping 221 million units for the full year. Many of those phones are sold directly by Apple, meaning it gets the full $650 retail price on those units. Even where the phones are sold through distribution, the company is getting at least $325/unit on them, when they cost just $200 to make.
Add in the 30% cut Apple gets on sales at its app store, the cash it gets from its iCloud storage service, the growth of Apple Music to 6.5 million subscribers in what seemed a heartbeat and the Apple bulls are right to give the bears dirty looks.
So here is what is going to happen. Apple will report results for the current Christmas season on January 27. The consensus estimate is for profits of $3.26/share and revenues of $77.32 billion.
That’s less than $4 billion more on the top line, and just 20 cents per share more on the bottom line, from last Christmas. Those are big numbers, but relative to what they have been doing it’s not great – top-line growth of 5% and bottom line growth of 6%. Beat that, beat it substantially, show that the online revenues are moving totals forward, creating sustainable revenue growth, and the stock will rise from here.
But Apple stock is not going to be what it was in 2013 and 2014 unless Apple can show substantial growth above those figures. And when numbers get as serious as this – giant retailer Walmart (NYSE:WMT) will be fortunate to do $120 billion in revenues – they leave their marks everywhere. They turn a growth stock into one for safe investors only.
Like I said recently this is a great stocking stuffer. It won’t get you rich but, like Santa Claus, it will make you feel safe and loved. If you do get a favored nephew a share, print your own stock certificate.