The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

Apple Stock Forecast

Summary:

The iPad product line is still the second-biggest revenue generator for Apple.

Releasing a new version of the mid-range iPad Air 2 could help improve sales. A more affordable $329 9.7-inch iOS tablet could boost Apple’s presence in the education market.

I expect Apple to soon offer a cheaper new version of its 8-inch iPad 4 tablet. My guesstimate is that it could have a basic price of $249.

Cheaper entry-level and mid-range iPad models could compete better with their Android tablet rivals.

AAPL is still a good buy for long-term investors.

I admire Tim Cook’s willingness to lower the bar for people to own iPad tablets. Apple’s (AAPL) new mid-range $329 iPad hints it is willing to lower its margins to protect its tablet business. In spite of the declining unit sales of its tablets, the iPad category still contributes more than 7% of Apple’s quarterly revenue. Apple generated more than $78 billion in revenue during its latest quarter. A product category that generates more than $5 billion in quarterly sales is worth protecting.

Reducing the basic price of its new version for the two-year-old $399 iPad Air 2 could encourage more people to replace their ageing iPads. The more people that join an upgrade cycle for iPads is better for Apple. At $329, the new iPad will also compete better with the Android tablets of Chinese firms like Lenovo and Huawei.

The higher price tags of older iOS tablets definitely contributed to the steady decline of Apple’s market share in tablets.

Yes, Apple is still the world leader in tablet sales. However, its share is now below 25%. Without the shift to more affordable iOS tablets, Apple would risk seeing its market share to below 20% before 2017 ends. Fortunately for investors, Cook has adapted a new pricing strategy that will keep the iPad the top choice for tablet buyers.

Cheaper iPads Could Slow Down Growth of Chromebooks

The cheap Chromebook laptops powered by Google’s (GOOG) Chrome OS now account for more than 58% of the computer products shipped to the K-12 market in the U.S. Budget-constrained schools definitely shied away from Macs and iPads over the last three years.

Please study the chart below. The iPad has lost big ground to Chromebooks. From 26% share in 2014, iPads only accounted for 14% of computer products shipped to institutional K-12 schools in America.

The long-term danger for Apple is that the students of today are the future productive workers. More and more American kids are now increasingly getting proficient in Chrome OS computers, not on Macs or iPads. By offering a more affordable iPad, institutional buyers from the education market could again take a look at the iPad. Retaining its leadership global tablet shipments requires Apple to make a strong comeback on the education market.

Apple is offering the new 9.7-inch iPad for $299 to schools. This special discount should entice school administrators to buy more iPads for its students.

iTunes Store Purchases Could Make Up For Lower Hardware Margins

I am not worried about the expected lower average selling prices of its iPads. Apple has reduced its margins by $70-to-$100 over the new iPad. However, let us never forget that cheaper iPads leads to more people owning it. The more iPad owners there are, the more customers there are for Apple’s iTunes store.

Some of the people who will buy the new iPad will become repeat customers of Apple’s app store. Apple gets a 30% cut from every purchase done through its iOS app store. For example, a person who saves $70 on the new iPad could eventually spend the said money saved on iOS games, movies, songs, and subscription services.

Conclusion

Apple can also offer soon a cheaper version of its entry level 8-inch iPad Mini 4. I won’t be surprised if Apple will sell $249 iOS tablets before this year ends. Lower price tags for iPads is the easiest way for Apple to reverse the steady decline in its tablet business. A positive quarter-over-quarter growth in iPad could prompt more investors to go long on Apple.

A disposition to lower the prices of its new iPads means Apple is adapting well to changing times. There is also money to be made on catering to budget-conscious customers. Apple’s long-term growth on tablets, smartphones, and computers should not depend exclusively on affluent customers.

I still rate AAPL as a Buy. This company’s stock has already posted YTD gain of more than 20%. However, I expect AAPL to hit $155-$160 price levels within the next 3-12 months. The algorithmic forecasts from I Know First are also very positive for AAPL.

I Know First Algorithm Heatmap Explanation

The sign of the signal tells in which direction the asset price is expected to go (positive = to go up = Long, negative = to drop = Short position), the signal strength is related to the magnitude of the expected return and is used for ranking purposes of the investment opportunities.

Predictability is the actual fitness function being optimized every day, and can be simplified explained as the correlation based quality measure of the signal. This is a unique indicator of the I Know First algorithm. This allows users to separate and focus on the most predictable assets according to the algorithm. Ranging between -1 and 1, one should focus on predictability levels significantly above 0 in order to fill confident about/trust the signal.

I Know First Past Success With AAPL

On May 15, 2016, an I Know First analyst wrote a bullish article for Apple and discussed the difficulties the opportunities for growth despite the stock’s decline. In accordance with I Know First’s self-learning algorithmic forecast, APPL shares increased over 55.37% since its publication.