The Apple [AAPL] share price has lacked momentum this year, hit by falling investor sentiment in big tech and legal challenges such as allowing its App Store developers to use third-party payment systems.
But the launch earlier this week of its new iPhone 13 and updated Apple Watch Series 7 could provide the bounce it needs.
The Apple share price began the year at $128.80 at the close on 4 January rising to $142.49 at the close on 26 January as shoppers flocked to reopened stores to unleash their pent-up demand for the iPhone 12.
The Apple share price then dropped to $115.99 at the close on 8 March as investors turned away from tech to value stocks. Investors also fretted about whether demand for Apple products would drop as people spent less time at home.
Anticipation of the new iPhone 13 helped the Apple share price surge to $156.69 at the close on 7 September.
The Apple share price however fell again in the lead up to and after the launch to sit at $146.06 at the close on 17 September.
Apple launched four new iPhone handsets, which experts said had few major design changes apart from a smaller camera system and bigger batteries.
“The biggest challenge will be maintaining a premium for what some users will see as incremental upgrades,” said technology and telecoms analyst Paolo Pescatore, as reported by The Telegraph.
“The biggest challenge will be maintaining a premium for what some users will see as incremental upgrades” - technology and telecoms analyst Paolo Pescatore
He still sees sales being strong. “There are millions of users who have yet to upgrade to 5G,” he said.
The Apple share price has climbed 33% over the past 12 months compared with peers such as Samsung [SMSN.IL] whose shares have climbed 32% and Google [GOOG] whose shares have risen 89%.
Over the same period, the S&P 500 has grown by 32%.
Apple has a 17.07% weighting in the iShares Global Tech ETF [IXN], which has climbed 39% in the past year, and a 20.17% weighting in the Fidelity MSCI Information Technology Index ETF [FTEC], which is up 39%.
Apple can keep pace and go beyond its peers with a hardware focus. It has the fundamental design and customer loyalty advantages to kick on again.
Apple fundamentals
Analysts at AJ Bell were not surprised that Apple’s share price did not respond positively to its iPhone launch.
According to investment director Russ Mould, in the six months before next-generation product announcements, Apple’s shares have risen by an average of nearly 23% but in the three-month and six-month periods afterwards, they have advanced by an average of just 3.3% and 9.3% respectively.
“A lot rides on the latest iPhone and shake-up of Apple’s product range. The firm continues to encounter anti-trust pressure from regulators regarding its App Store – and its monster $2.4trn market capitalisation means that any slip or loss of earnings momentum could leave shareholders with a problem,” he said.
“A lot rides on the latest iPhone and shake-up of Apple’s product range. The firm continues to encounter anti-trust pressure from regulators regarding its App Store – and its monster $2.4trn market capitalisation means that any slip or loss of earnings momentum could leave shareholders with a problem” - AJ Bell investment director Russ Mould
But with a tailwind of 5G services and networks continuing to roll out he says it is not wise to bet against Apple.
“There seems little reason to expect app sales to stumble, barring perhaps a nasty recession, and they also make Apple customers sticky and more likely to upgrade their devices in the future, creating a virtuous circle,” he states.
On the website Applemust.com Morgan Stanley analyst Katy Huberty believes that “despite the relatively unchanged like-for-like iPhone pricing compared to the iPhone 12, the introduction of higher-end iPhone storage stock keeping units” is likely to drive year-on-year phone average selling price growth.
“At the same time, higher iPhone trade-in values and more aggressive carrier promotions make the iPhone 13 more affordable for consumers,” Huberty said. "When combined with iPhone replacement cycles, 5% 5G adoption within the iPhone installed base, fully reopened retail stores we remain bullish on the prospects for iPhone growth in FY22."
In addition, customer loyalty to Apple performance, design and marketability remains strong and provides an edge over peers such as Samsung. iPhones remain must-have devices.
According to Counterpoint, Apple had a 31% share of the global smartphone market in the second quarter, up from 26% in the first. The Apple share price could therefore be supported by fundamentals.
According to Stock News its trailing-12-month earnings before interest, taxes, depreciation and amortisation (EBITDA) margin and return on sales of 31.96% and 25% respectively are significantly higher than the 14.7% and 6.22% industry averages. Apple’s trailing-12-month earnings per share increased 55.1% year-on-year to $5.11.
“When combined with iPhone replacement cycles, 5% 5G adoption within the iPhone installed base, fully reopened retail stores we remain bullish on the prospects for iPhone growth in FY22” - Morgan Stanley analyst Katy Huberty
Its price-to-earnings ratio is 28.59, which is down from 35.60 at the start of 2021 but is higher than its historical average.
It is trading below its 50-day moving average but below its 200-day moving average which usually means a buying opportunity.
Market bounce
The global smartphone market looks strong helped by 5G technology. According to Research and Markets, the market is expected to rise at a compound annual growth rate of 124.89% between 2021 and 2025 to $823.93bn.
The main drivers are growing population, integration of AR technology, e-sports audience and mobile e-commerce. Growth of 4G technology in emerging markets could also boost Apple’s sales. The company has the potential to rival peers such as BlackBerry in developing automotive software and even creating its own Apple Car.
Analysts are bullish. Market Screener has Apple as a ‘buy’ and gives it a target price of $165.36.
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