Apple Stock Predictions: Summary

Operating profits have dwarfed their rivals.

Apple Watch has the potential to revolutionise the wearable-tech industry.

Apple TV appears ready to launch soon.

The algorithmic analysis is bullish on Apple.

The world’s most valuable company recently reported that it’s second-quarter iPhone sales in the Chinese market was approximately 30% – surpassing sales in the US for the second quarter in a row. Ordinarily this would be fantastic news, as China possesses the biggest consumer market in the world, however, current economic uncertainty in China is undoubtedly a cause of concern for both Apple (AAPL) and its investors. Despite this, Apple looks ready to maintain its seemingly unstoppable growth rates right into 2016.

China

Chinese markets have recently been faltering which has resulted in the Chinese Central Bank being forced to intervene in order to stabilise their stock markets. But, despite all the various measures and market interventions the government has taken, I believe that now that the Chinese economy has matured, China will never see growth rate levels it has seen in recent decades again.

That being said, Apple will not be detrimentally effected. Yes, Apple’s iPhone sales largest market is indeed China and if smartphones were a luxury product iPhone sales would undoubtedly be negatively affected. However smartphones have become commoditized and consumers will therefore purchase smartphones regardless of their financial situation. Moreover, the fact that Apple users are fiercely loyal to the Apple brand will also help cushion any dire economic situation.

Apple tablets and Apple Watches are luxury products though and sales of the two products will more than likely be effected by an economic downfall. However, revenue from both of these products from the Chinese market is not significant enough to drastically effect Apple’s vast revenue base.

Smartphone Operating Profit Domination

In the first quarter of 2015, Apple accumulated 92% of total operating profit from the eight top global smartphone producers – up from 65% a year earlier. Although rivals Samsung sold 30% more smartphones in Q1, they only managed to reap $1 in phone related operating profit for every $6 Apple made, thus representing 15% of total operating income. The reason the combined total of the two surpasses 100% is a result of many competitors making losses.

(Figure 1)

Despite the 92% market domination, Apple represented a meagre 18% of total phones sold in the first quarter, implying that customers are paying a large premium for the Apple brand, thereby tolerating Apple’s large profit margins. From January to March, Apple gained $15.3 billion operating profit in smart phone sales. For comparisons sake, total operating profit for the leading smartphone maker was $16.7 billion.

Aside from questioning Samsung’s operating strategies, obtaining such high profits with such a small market share will undoubtedly embolden both Apple and Apples’ stakeholders to wonder to what extent and how much their profits could be inflated if they increase their smartphone sales volume.

Ventures in the Wearable Tech Market

Just as Apple innovated the touchscreen industry and made touchscreen technology mainstream with its launch of its first iPhone in 2007, they now seek to make wearable technology mainstream too.

Although there has been initial scepticism since its launch back in April, the Apple Watch seems to finally gaining steam. Although Apple has not released any official data regarding Apple Watch sales, Societe General analysts believe that Apple must have sold at least five million Apple Watches in just the previous quarter for an average price of close to $500.

Key unique features of the Apple Watch include health-orientated capabilities which can monitor ones heartrate and other fitness-tracking systems. As well as hosting countless applications, the Apple Watch can send SMS messages, make phone calls, utilise maps and includes the personal assistant Siri.

Wearable technology is unquestionably a future market. The next generation will utilise wearable technology devices as new ways to consume and use information in the same way that everyday conduct is dominated by smartphones in today’s generation. Murphy and Fischer estimate that wearable technology will grow exponentially in the upcoming years and confidently believe that the target market for wearable technology is anyone living in a developed nation over the age of fifteen – approximately 1.08 billion people.

Figure 2: Apple Watch

Additionally, health and fitness has become central to a consumer lifestyle and the Apple Watch fitness tracker could easily become an instrumental player in the $500 billion global health and fitness market.

Indisputably, the Apple Watch has not been as successfully sold as Apples’ other products so far. But, considering it is a new product with an untapped niche and has potential to be just as big of a seller as smartphones to an equally big market, investors should observe Apple Watch developments closely.

Apple TV

Over the past few months it has been commonly reported across the tech world that Apple seeks to employ its own TV service. A recent report in the New York Post indicates that deals with numerous TV networks including ABC, CBS, NBC, Disney and Fox could be signed in the upcoming Fall.

Now that Apple have allegedly solved all issues involving the usage of content rights – which killed a similar TV streaming service run by Aereo back in 2012 – the iPhone maker has surpassed all the main legal hurdles preventing it from finally launching a its own Apple bundle that users will be able access via their smartphones, tablets and PCs.

Figure 3: Apple TV

If Apple do indeed finalise these deals, the service could develop into a phenomenal entertainment application that would allow customers to circumvent the necessity of paying to watch certain programs on their cable and satellite networks. The likelihood that Apple would offer a cheaper product and a superior service than the pay-to-watch TV companies is high. When Apple put their impressive brand name on a new and cheaper TV streaming service, pay-to-watch satellite channels would undoubtedly see a huge migration of their customers to Apple. The Apple TV application would be another addition to Apple’s diverse streams of revenue and would help push APPL shares to further highs.

Record Third Quarter Results

Apple latest quarterly profits rose 38% to $10.7bn, whilst revenue rose by 33% to $49.6bn.

The technology giant sold 47.5 million iPhones in the quarter to 27 June, up 35% on a year ago, with Mac computer sales also up 9% to 4.8 million helping Apple achieving what CEO Tim Cook labelled “an amazing quarter”.

Despite this, AAPL shares fell by 6.7% ($8.85) to $121.89 in after-hours trading after revenue forecasts for the fourth quarter were slightly lower than expected and Apple’s profits being centred too much around iPhone sales. Apple is forecasting revenue to be between $49bn and $51bn in the fourth quarter.

Quite remarkably, I Know First’s algorithm correctly predicted this bearish near term stock movement. The below forecast was attributed to AAPL stock before the on July 21st before Apple’s quarterly results were released

The forecast gave AAPL a negative signal of -2.22 for the three day forecast and as time progresses Apple’s bearish signal becomes weaker receiving a mild signal of -0.67 in the 14-day forecast. Apple’s longer term algorithmic forecast is analysed in this articles conclusion.

Analysts Opinion

Analysts overwhelmingly agree with the bullish fundamental analysis of the Apple Inc. Both Brean Capital and Societe Generale have recently recommended “buy” positions on the stock. Indeed, the common consensus amongst analysis is, according to Yahoo! Finance, leans very heavily towards a “buy” recommendation.

(Source: Yahoo Finance)

Similarly, the mean price target is $148.88, over $20 more than the current price and pushing towards that $150 mark. Clearly, analysts expect AAPL stock to continue rising in the later parts of 2015.

Algorithmic Analysis

I Know First has had success predicting the movement of Apple’s stock price in the past. In this one-year forecast from May 11th 2014, AAPL had a slightly bullish signal with a signal strength of 4.50 and a predictability indicator of 0.6. In accordance with the algorithm’s prediction, the stock price increased by 53.02% during that time as depicted in the diagram below.

(Figure 1: AAPL forecast May 11th ’14)

Having explained how I Know First’s algorithm works and providing an example of its success in the past, it is worthwhile to see if the algorithm agrees with the bullish fundamental analysis of the company. The three-month and one-year forecast for Apple Inc. is included.

(Figure 2: AAPL forecast 15th July’15)

The above forecast is one of our most-recent forecast from June 15th 2015 and is for the long-term periods of three months and one year. Both forecasts are moderately bullish with the three-month forecast having a signal strength of 16.88 and a predictability of 0.26. Likewise, the one-year forecast has a positive signal of 10.93 with a predictability indicator of 0.27. The algorithm thus correlates with the fundamental analysis which indicates that Apple’s next four quarters will be lucrative for AAPL share holders. The fact that they are rolling at least three new products in the upcoming new months was enough to convince analysts to upgrade their reconsiderations.

Conclusion

Leaving uncertainties regarding the Chinese markets aside, Apple’s next few fiscal quarters could potentially be up there with some of their bests performing quarters. Their operating profits for smartphones have ridiculed their closest rivals despite selling 30% less devices, Apple Watch sales have been hitting off and have the potential to innovate the wearable tech industry and effectively create a new industry and Apple TV appears ready to be finally launched this Fall. Without a doubt, Apple’s has an optimistic future with little scope for any downside movement on their stock value. I Know First’s algorithmic analysis also has a bullish view of Apple stock which corresponds with the basic fundamental analysis. With both the algorithmic and fundamental analysis indicating Apple to have a very favourable future, it would take a very brave investor to not see AAPL with a bullish viewpoint.

