Apple stock: This is not a repeat of 2015-16

“On Monday, shares of technology giant Apple led the market lower, falling more than 5% to their lowest level in a couple of months. The decline came after Lumentum, a company that supplies lasers for Apple’s Face ID system, warned of a revenue shortfall, increasing fears over an iPhone slowdown,” Bill Maurer writes for Seeking Alpha. “While some are starting to wonder if this is a repeat of the 2015-2016 period where Apple shares lost a third of their value… the situation today is much different, and that’s a good thing.”
“The last major iPhone panic came in 2015-2016 with the iPhone 6S line launch. Perhaps the biggest issue was that the iPhone 6 did so well that Apple could not hit a home run in back-to-back years. Last year, Apple did really well with the iPhone X, and this year we have the problem of management deciding to no longer report unit sales,” Maurer writes. “iPhone unit sales have been rather flat in recent years… Apple itself is also a much different business than it was three years ago… Apple’s services segment has basically doubled in three years, soon to be 20% of the overall business. Throw in sales of newer products like the AirPods, HomePod, etc., and we don’t have to focus as much on iPhone unit sales each quarter.”
“The Street is currently calling for revenue growth of about 7% and for earnings per share percentage growth in the low teens. Even if those estimates come down based on all of the bad news we’ve been hearing recently, what’s the worst that you can imagine, flat year-over-year revenues? At that point, we’re still nowhere near a 10% revenue decline, and management’s recent $20 billion a quarter buyback pace will certainly help EPS, especially if shares continue declining,” Maurer writes. “Throw in major tax changes, and the financial situation has improved too. While Apple investors may feel some pain in the short term, there is nothing structurally wrong here that worries me about Apple in the long run.”
Read more in the full article here.
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