Is Apple Inc. Starting to Shrink?

Apple Inc.’s (AAPL) share price has started rising after a particularly poor showing in 2015. However, the rough patch the company endured during the last few months has seen many investors in the forex and binary options trading scene question the viability of the tech giant as a growth-focused stock. In this article, we examine the effect of the dip in Apple’s stock in 2015, the outlook for the coming year, and why this stock still holds tremendous value.

A Disappointing 2015 Has Raised Investor Doubts

It is no secret that Apple had a pretty rotten last few months. The iPhone manufacturer’s stock dropped from a record peak of almost $135 in April 2015 to hit $96.96 toward the end of the year, which represents a 28% decline in value. This dramatic drop has left investors and traders wondering if Apple Inc., after years of growth and unmatched profits, is finally starting to shrink.

If you measure the tech giant’s 2015 performance on the industry’s most common metrics, it does look that way. The stock’s price to earnings (P/E) ratio is at about 10.5, which is a level normally seen for very slowly growing companies or those with significant troubles. Simply put, the company is in uncharted territory where expectations for its immediate future are much lower than they have been for a

What is the most surprising part of all this is that there is no clear-cut reason for the stock to have performed so poorly. The newly launched Apple Watch was generally well received, while the company’s flagship iPhone 6S, as was expected, broke sales records.

What makes the situation even more perplexing for people looking to invest in Apple is the fact that, during the last fiscal year, the company delivered what has got to be the most impressive corporate performance of any company in history. According to adjusted figures, in the quarter ending September 30 2015, Apple grew its asset base from $235 billion to a whopping $284 billion, representing an increase of $49 billion. The company also managed to generate more than $25 billion in cash flows as a result of this relatively modest rise in its asset base – an incredible return of 51%.

Market Outlook for Apple

Whichever way you choose to look at it, Apple is one of, if not the most, financially successful companies on the planet. Regardless of this, the company cannot afford to rest on its laurels and expect past achievements and market momentum to lift its stock price. It will take a lot of hard work and some solid results to convince traders and investors that the company’s stock is not shrinking. The good news, however, is that all the signs point toward Apple continuing to recover from its 2015 slump. To understand this conclusion, we first need to take a step back and review how Apple stock has performed historically.

You may be surprised to find out that AAPL shares have been, hands down, one of the most profitable stock market investments an investor could have made in the last 10 years. In fact, since 2005, Apple’s stock price has actually risen by more than 1,000%, and all indications are that, despite minor hiccups, this trend is going to continue for the foreseeable future.

In addition to having a strong lineup of historically strong, profitable and market leading products, the company has now started to venture into lucrative, new market sectors that were not even in existence only a few short years ago. One of the most notable examples is in the wearable fitness technology segment, which is a niche that is currently dominated by Fitbit Inc. However, the newly introduced Apple Watch is definitely going to offer strong competition.

apple watch

When you consider that Apple can bring significant amounts of research and development funds to the table, it would hardly come as a surprise if they were to simply overwhelm Fitbit and take over as the global market leader in the fitness band business. Although Fitbit has gained an edge by being the first to market, there is no other real, apparent advantage that the company holds over Apple, should they decide to battle for this particular market.

Why Apple Stock Isn't About To Shrink Any Time Soon

After having an admittedly difficult year in 2015, there are still several reasons for potential and current investors in Apple to remain optimistic about the company. Some of these include:

  1. Massive inflows of cash: Every quarter, for more than a decade, Apple has generated billions of dollars in excess cash inflows, with the accumulation of these cash reserves increasing the stock’s core value. A look at the market value of the company will reveal that a large percentage of its capitalization is held in cash, while the company itself is not exactly burning through its cash reserves in any significant way.
  1. iPhone Sales: In spite of the predictions of some market analysts and the current lukewarm sales of the iPhone, many still believe that the company’s profits will still be driven by massive sales of the device for quite some time. Because there will be fewer carriers subsidizing sales of the phone, the upgrade cycle for the iPhone will shorten, putting new products in the hands of the consumer more often. iphone sales
  1. Average margins of 40 percent: In an ultra-competitive industry like tech hardware, forty percent is a barely believable margin. Apple is an incredibly profitable company.
  1. New products are being launched in new categories: The Apple Watch, despite reasonably good sales, has been met with mixed reactions from its first adopters who expected to be able to do much more with it. However, as the product is developed, it will definitely be improved and more features added, with those who bought the first version likely to be the first to adopt the new version as well. There is also plenty of optimism that surrounds Apple TV and the impressive ecosystem that is being developed around the product. Although Apple Pay has quite some way to go to really compete with more established names, it is still a significant revenue source for the company. All in all, Apple has a number of popular products that are yet to enter their product-upgrade cycles. When this happens, it will result in the company gaining additional streams of revenue.
  1. Apple is taking Google’s cue and incubating products of its own: Alphabet Inc., the parent company of Google, was formed with the twin aims of seeding long-term projects as well as taking advantage of potentially profitable new opportunities. Apple’s electric car - whether the car itself or the technology that makes it tick – is one of a number of new projects that are being developed by Apple with its long-term possibilities in mind. It is rumored that Apple has many similar ideas that it is looking at as well.
The Final Word

Although market sentiment is a fickle thing, and the situation can change for the worse for any company at any time, it seems incredible that so many people are losing faith in a company that still reports billions of dollars in cash flows. Truth be told, Apple is a stock that has done well for its longer term investors in the past decade and will most likely continue to do so for several more years.

The positive thing for investors, however, is that negative sentiment regarding a company that still has its core fundamentals intact is a signal to buy. To better understand why AAPL is still a viable stock for q trader’s portfolio, it is best to look at it a bit differently from other stocks in its segment.

The technology sector is full of flashy names whose short term fortunes rise and wane depending on the success or failure of the latest new product or service they have launched. On the other hand, Apple is a mature company with its major revenues driven by well-established products with a dedicated buyer base. The performance of the stock starts to look even more impressive when compared to other mature companies and the general equity market instead of its newer, high-flying tech peers.



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