1 Thing Investors Need to Know About the iPhone 6 Launch

The iPhone 6 is expected to be an amazing, record-shattering product. Unfortunately, this is a double-edged sword.

Jul 5, 2014 at 11:00AM

There have been a lot of leaks lately pertaining to the Apple (NASDAQ:AAPL) iPhone 6. At this point, we've seen mockup after mockup, heard rumor after rumor, and even still, investors are hungry for more. While some of these reports and leaks are more accurate than others, there's one thing that you absolutely need to know about it before its launch in the fall.

Expectations are really high
How many people actually think that the iPhone 6 is going to be a flop? Anybody? That's what I thought. The iPhone 6 is expected to be a gigantic hit. With what is likely to be a super-thin design, a larger screen than the iPhone 5s, and more processing power than anybody has ever stuck into a smartphone, this thing should just plain rock!

The problem, unfortunately, is that the above argument is the furthest thing from novel. The stock is now trading on the expectations that Apple is going to have more-or-less a blockbuster iPhone 6 launch. Sure, the stock trades for a reasonably cheap 15.63 times trailing 12 month earnings, but keep in mind that at these levels investors are factoring in the following:

  • Double trouble: The iPhone 6 is expected to launch in two flavors, 4.7-inch and 5.5-inch, to greatly expand its total addressable market.
  • Swimming against the ASP tide: Apple may experience average selling price increases, particularly if it can price the alleged 5.5-inch model meaningfully higher (say $100) than the 4.7-inch model.
  • Share gains: In many regions, particularly in Asia, large phones are extremely popular. Further, according to a Kantar Worldpanel ComTech report, of the customers in the U.S. that did switch from Apple's iPhone to a Samsung Galaxy S5, a highly cited reason was the screen size. Presumably the iPhone 6 gets some of that "easy" share back.

Let's go a step further and take a look at analyst consensus to get a feel for what the "market" is expecting in more quantifiable terms.

Digging into consensus
According to Yahoo! Finance, consensus for the current year (ends in Sept. 2014) is for $181.58 billion in revenue (up 6.2% from the prior period) and $6.31 per share (up from $5.68 in the prior year). Going a step further, the sell-side is looking for $194.50 billion (implying that revenue growth accelerates to 7.10%) on the top line and $6.89 per share on the bottom line.

Though price-to-earnings is just one of many valuation metrics, the shares don't look all that expensive at 14.81 times this fiscal year's earnings and 13.57 times fiscal 2015's earnings. Now, it's unclear if these numbers are adjusted for expected buyback activity or if the buyback could drive potential upside, but either way Apple looks cheap.

More importantly, though, is that these mid-single digit growth estimates don't seem to be wildly optimistic, though you can see that the expectation of share gain is built into the 2015 estimates as year over year growth is expected to accelerate.

Foolish bottom line
If there's anything you should take away from this, it's that investors expect some pretty great things from iPhone 6. The good news is that if Apple can rip the cover off of the ball and push right past current sell-side estimates, the stock could power higher still. The bad news, though, is that if Apple even so much as slightly misses these estimates, the stock could be irrationally vulnerable and this could be a welcome buying opportunity for those who still believe in the long-term story.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers