“Innovation distinguishes between a leader and a follower.”

-Steve Jobs

Summary

• Apple announced strong Q4 results, nevertheless the stock declines
• Outlook on Future Sales and Profits look promising
• Apple is launching a new streaming service and are facing high competition
• Risky investment environment around the world
• Bullish I Know First Algorithm Long Term Forecast

Q4 results and the reason for the latest stock decline of Apple

The decline of the Apple stock, when they reported their resutls was surprising as the company reported strong earnings and exceeded analysts’ estimation. Reasons for the major setback are as follows: lower revenues in the next quarter expected and major changes in the reporting structure.

Another reason might be, that latest iPhone is not fulfilling its expectations. According to KeyBanc Capital Markets Analyst John Vinh, iPhone XR inventory is piling up at stores due to weak sales. The Analyst John Vinh states:

“Our latest carrier survey indicates in-line iPhone XS/Max demand, while iPhone XR sell-through has been underwhelming, while iPhone XS Max inventories remain healthy, XR inventories have already bloated to over 3 DOI [days of inventory].”

Another problem area is that apple users are complaining that the iPhone-producer is “nickel and diming” them. On Reddit, a social news aggregation, hundres of users are complaining about Prices of iCloud storage and products. The Apple community of Reddit is usually full of fans writing about Apple’s lates product releases.

Nevertheless, Apple has beaten the estimates in the segment of earnings and revenue once again. Earnings were $2.91 per share vs a forecast of $ 2.78. Revenue were $62.9 billion vs. $61.57 billion. Some analysts argue that the market slightly overreacted if you look at the fundamentals.

If you look at Apple from a different perspective, for example to the P/E ratio in the chart, you see that the P/E ratio which is an important measure to value a company, is at the highest point since 2010. P is the share price and E is the earning per share. The higher the P/E ratio is, the more expensive the stock is. This implies that Apple might be overvalued and that it is time for a correction.

[Image Source: waldom.com]

 

Future prediction of Sales and Profit of Apple

[Image Source: marketscreener.com]

The Annual Income Statement of a company is crucial to predict the valuation of a company. As pictured on the right some analyst made estimations for the future. The estimation for the future seems reasonable and shows that the growth of Apple is sustainable on a very high level. The same applies for the Net Income, which is constantly rising even though there is growing competition from Asian Smartphone manufacturers. Even when Apple loses market share to its competitors they manage to maintain or even increase their profitability. Therefore, I believe that the stock of Apple will stay interesting in the next few years.

Apple’s new streaming service

In 2018 Apple still relies significantly on the iPhones, which is responsible for most of the sales. For years Apple tried to diversify its product portfolio but failed. In the year 2018 the Sales from iPhones accounted for around 62 % of the revenues of the entire company. In numbers the iPhones sales are around $166.7 billion whereas all other categories together account only for around $100 billion of the sales. This can be considered as an enormous risk for the company and Apple is aware of that risk and therefore tries once again to get more diverse by launching a new product.

[Image Source: statista.com]

According to a recent report, Apple is going to launch its own streaming television service in the next year which is going to resemble to the established streaming provider Netflix and Amazon Prime. By doing this, Apple is going to follow a huge trend and is entering a new and potentially lucrative market. A few years ago, Apple also successfully launched Apple music, a music streaming app, that now already has more than 50 million users worldwide and became the main competitor of the music streaming leader Spotify.

As reported by PricewatherhouseCoopers streaming video services generated around $20.1 billion in revenues last  year. More remarkable is the growth rate which was 15.2% last year, which shows the huge potential of the video streaming services. According to PWC the sector will grow to $30.6 billion until 2022. If Apple manages to enter this very competitive market and establish successfully, I expect them to grow more dynamically. Additionally, Apple can diversify their products and try to reduce the dependability to the IPhone.

[Image Source: thrillist.com]

 

Investing in a risky environment

There are good reasons from a fundamental point of view that the Apple stock is not going to rise in the next few months. The global markets are in a correction phase, which is a reason more to be careful in the next few months. Moreover, there are many political uncertainties such as the escalating Trade war between the US and China. These political problems stay unpredictable and can cause a volatile market in the next few months. Apart from that Apple has several problem areas, such as high inventories and complaints on the platform Reddit, but I am convinced that Apple can handle these challenges in the next few month. On the other side,  by entering new markets as the music and video streaming business, Apple stays innovative and willing to diversify its products portfolio. Therefore, I still consider Apple, at least in a long perspective, as a promising company with high return.

[Image Source: starkfeed.com]

Bullish I Know First Algorithm Long Term Forecast for AAPL

My bullish long term outlook for APPL  is supported by the current bullish I Know First Forecast for APPL in long term.  The Apple stock is seen neutral to negative in a 1-3-month perspective and therefore is likely to stagnate or to remain in a correction phase. In a one-year perspective Apple remains bullish with a predictability of 0.83 and a very high signal of 157.45.

How to interpret this diagram

Moreover, our I Know First Algorithm successfully forecasted the Apple stock in the past. In May 2016 we can see how Apple had a strong bullish signal of 214.08 and a good predictability of 0.14 for one year. After that the stock rose significantly over the entire year by around 53%.

[Image Source : Yahoo Finance]

 

This bullish forecast for AAPL was sent to the current I Know First subscribers on May 22, 2016