- Apple is being left behind with regard to innovation.
- The next iPhone is their most important product launch yet.
- Apple is strong financially but could be over-valued.
In the past, Apple (NASDAQ:AAPL) was a company with high expectations placed on every aspect of their business . For instance, some held a strong belief that they could hit $1 trillion in market cap. These high expectations have been a blessing as well as a curse for the company. In the past few years, there is a sentiment that they have run out of their unique spark of innovation which allowed them to crush competitors. For instance, the iPhone SE (more on that later) was arguably a disappointing device. It was clearly an attempt to generate revenue from mid-range smartphone buyers; however, the design throwback to the iPhone 5s left the market somewhat confused. Apple was known for their fresh designs, and approach to business; however, recent product releases seem to be small steps forward.
Part of Apple's brand identity was their simple and minimalist approach to every part of their business. Even their stores were built to look symmetrical and evoke a sense of tranquillity. However, in recent years, this has been lost. For instance, is the iPhone SE the latest iPhone or something for those on a budget? The fact that it has iPhone 6s internals in an iPhone 5s shell begs the question of whether it was a wise release. Moreover, Apple's latest iPad Pro has reduced in size so that it has the same 9.7 inch screen as the iPad Air 2. All this does is confuse consumers as to which device is best for their needs.
In the past, Apple stayed away from the act of flooding the market with different devices in order to see what resonates. This was a method reserved for the likes of Samsung and HP. Speaking of Samsung they have 'cleaned up' their product range and made things simple. Their attractive flagship devices are well-known and can stand toe-to-toe with Apple's. Interestingly, Samsung's handsets earlier used to be for those who couldn't afford an iPhone.
Worryingly, Samsung has somewhat out-designed and out-innovated Apple. The Galaxy S7 Edge is widely regarded by tech journalists as one of the most beautiful phones. Arguably, it makes the iPhone look rather basic.
Despite the fact that Apple hasn't triggered the same level of excitement in recent times, their sales figures are still going strong. 2015 was a record-breaking year, and we will see how this year goes.
The fact is that Apple's positive relationship with consumers is borderline cult-like. However, the factors which brought them to that point are getting stripped away bit by bit. Intense competition means that companies such as Huawei are able to create devices comparable to the iPhone. Moreover, in comparison to the first iPhone, first MacBook Air and iPad, they aren't launching devices which make us hold our breath.
The next iPhone is the most important product for Apple in their history. If they don't come with something extraordinary, Samsung will be able to capitalize. However, if they can surprise us, in a positive way, not only will they appease consumers, but also investors too. And this is critical.
Apple is one of those companies which investors expect will break records every financial year; however, as parts get cheaper and competitors become more imaginative, this isn't always possible. As a result, missing their financial targets can lead to punishment on the stock market.
Quite simply, Apple isn't the safe stock it once was. Expect the share price to go through a series of cycles over the coming years. Fortunately, Apple is a huge part of the western culture so it will continue to have a big part to play.
Impressively, Apple's revenue has ballooned at a compounded annual rate of 25.2% over the past five years. However, you can expect this to go down. Consumers today, are spoilt for choice; therefore, a lot rests on the next iPhone. It can be the platform to cause sales of their other products to shoot up.
For every dollar Apple of Apple sales, they get 30 cents back. And in an industry where it is common for companies to lose money, not to talk of break-even, this is highly impressive.
On the other hand, there are some indicators which show that Apple stock might be overvalued. For instance, Apple's price to sales ratio is 2.6x. In comparison, the Computer-Mini industry has an average of 1.2x. It is worth noting that this is due to Apple's high brand value. However, as previously stated, Apple's recent measures could erode the value of their brand over time.
In conclusion, Apple enjoys a unique position in the tech industry. Moving forward, we will see their share price stabilize. If you are a value investor or want to see a good return on your investment, Apple isn't the company for you. However, a mixture of high expectations and failing to really innovate, on the product front, means that we won't be seeing the huge year-on-year share price jumps.
Tech companies such as Tesla and Baidu are likely to grow significantly this year. In an industry which is getting more competitive every year, Apple seems to be resting on its laurels.