Apple Stock began the year 2019 on a really bad note because it fell as much as 10 percent. This was a 52-week low and occurred after Tim Cook, the CEO of the company, gave Wall Street a shock with a troubling update; the holiday quarter of the iPhone maker was not a good one. Likewise, Cook also said that their sales forecast for the first quarter of 2019 were also not accurate because they were more optimistic than necessary. In the wake of this bad news regarding one of the most steadfast technology juggernauts, what should investors do?
Is it a good idea to purchase Apple stock or should they consider others? If you are also in the same boat and wondering whether to purchase Apple stock or not, you should know the prominent benefits that investing in it can offer to you:
The price target of Apple stock is going up
As mentioned before, Apple has had a rough start in 2019, which included downgrades by multiple analysts and a guidance cut. But, it appears that the stock has bounced back once again and is again on the right track. Investors are very optimistic about the trade war with China coming to an end, which the company said was the main reason behind its guidance cut. The Apple stock has already experienced a price increase by 17 percent and it will continue to increase in the rest of the year.
The overall trends in the industry are positive
One of the major reasons for investor concerns about the health of the company is due to the media reports regarding price cuts in China. However, the channel inventories of the company grew by 4 million units. While the price cuts did lower the inventories and cost the company margin in China, but these can be a net positive for investors and can help increase the order stability of the iPhone.
The price cuts in China are deceptive
Any time there is a cut in price of a product by a company, investors immediately become concerned about its demand. According to experts, Apple has probably been monitoring some key developments in China and this gave it the opportunity of reducing its prices. Firstly, the dollar has weakened against the Chinese yuan and China has also reduced its value added tax rather aggressively. In the past, the iPhone maker has used the opportunity of reducing their prices for gaining market share after tax cuts.
There is an opportunity to offer Apple Services in China
The possibility of growth in China is likely to have a positive impact on Apple stock. As the revenue growth of the iPhone unit flattens, investors are hoping that Apple services will pick up some of its slack. Unfortunately, this area was a problem for the tech company, but this dynamic is expected to change soon. The Chinese government has again started approving mobile games after they had put them on hold in the second half of 2018. The newly approved games boosted growth in the China App Store by 10.7 percent in the first couple of weeks with February, which was an increase from 4 percent in January.
The trends concerning gross profits are positive
In the last five years, one of the best indicators of Apple stock has been the year-over-year growth seen in the company’s gross profits. In the late summer of 2018, the gross profit dollar growth peaked at 20 percent, but then it took a nosedive, along with its share price. However, analysts say that after hitting rock bottom at 9 percent, the gross profit dollar growth is once again on the rise and will be around 15 percent soon. The second half of 2019 promises to bring in significant growth for gross profit dollars, boosting Apple stock as a result.
The earnings estimate cuts were too deep
When Apple kicked off 2019 with guidance cuts, a number of Wall Street analysts followed the company’s lead by cutting their own estimates for the company’s revenue and earnings. But, it seems that some of these estimates were rather too deep, particularly in the long run. The company will turn around in the latter half of the year and Apple stock will also undergo an increase.
The company can still gain market share
When it comes to the high-end of the smartphone market, there is no denying that Apple has a dominant share of it. For phones that are priced at $900 or above, the company has approximately 93.7 percent market share and 99.9 percent for phones that have a price tag of $1,000 or higher. But, its market share for devices in the range of $500 and $599 is just 34 percent and 22.8 percent for those less than $500. The falling prices of older models of the iPhone will enable Apple to offer quality products on the lower end of the market, increasing its shares and giving Apple stock a boost.
The users of the company are very loyal
The iPhone user base all over the world comprises of about 900 million people and the user satisfaction rates of the company are quite high. Not only are users happy with their phones, the thought of switching operating systems brings rise to a whole new world of potential difficulties in preferences, transferring data and contacts. Even if competitors continue to roll out new products on a yearly basis, iPhone users are less likely to switch. Studies have shown that iPhone users are more loyal than users of any other smartphones.
Other than these reasons, Apple stock is expected to grow up because the company has revenue growth catalysts. There are multiple revenue growth opportunities in the coming years, which include a video streaming service. It is also expected to launch new devices, mostly wearables this year and like other devices, they will probably have high initial adoption rates. Thus, it would be an excellent decision to purchase Apple stock as it will give you great returns in the future.
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