- Investors should ignore the double top pattern, and instead look to Apple’s promising future.
- iPad refresh will drive significant revenue growth in the next fiscal year, and new product categories like iWatch will be supplemental to Apple’s growth.
- Assuming iPad, iWatch, peripheral, and software/app/iTunes growth continue, Apple’s stock price will continue to trend higher.
Apple (NASDAQ:AAPL) remains a compelling investment case, and while the double top may dissuade investors from piling onto the stock, the company may be able to break through that level based on end of year earnings catalysts that can drive the performance of the company.
In the past two years, the stock has declined considerably, but it has been able to make that up in 2014. Sales declined in fiscal year 2013, and there were fears that Apple was no longer a growth investment opportunity. Elaborate theories were created as to why the company wouldn't be able to grow its business. However, as fiscal year 2014 rolled around the China Mobile deal, iPhone 5S launch, and various upside catalysts pushed the stock higher.
In the second quarter of the calendar year, Apple iPad shipments have declined. However, it’s likely that iPad refresh will boost shipment figures, upon the release of the next generation iPad. Shipment figures may be higher by as much as 50% over the prior year comp. This is because a combination of new customers paired with refresh from the pre-existing installed base should drive significant volume growth. The current ASP figures for iPads are $443 (combining the iPad mini with iPad). Therefore, if shipment figures grow to 105 million units in fiscal year 2015, revenue from the iPad segment may in fact reach $46.5 billion.
Apple iWatch shipments forecast
Over the next five years, iWatch shipments should grow significantly, and assuming first years sales reach 42.43 million at a $300 ASP, sales contribution will be $12.72 billion. The combined impact from iPad and iWatch should drive enough bottom/top line growth to push the stock significantly higher.
However, iPhone growth is expected to slow, so the impact from other products in its ecosystem paired with revenue from its application store will be where the bulk of Apple’s growth will come from on both a dollarized and percentile basis. Apple iPhone still remains dominant, and it’s likely that amid disappointing shipment figures at Samsung, that Apple’s handset division will become the stalwart in the space.
Therefore, Apple is a long-term buy on improving growth prospects, reasonable valuation when compared to peers. It also helps that Apple will continue to return cash to shareholders in the form of share buyback and dividends.