On Tuesday, widely followed Apple (AAPL +0.41%) analyst Gene Munster stated that Apple stock could fall by about 10% in the next one to three months, according to CNBC. Munster's reasoning is that a lot of the hype surrounding the new iPhone will wear off following the launch event scheduled for next Tuesday. After all, it will be months before investors get a real sense of how Apple's new iPhones are selling.
Nevertheless, while Apple stock has surged by about 50% in the past year, investors shouldn't count on a pullback anytime soon. The new flagship iPhone could potentially drive a huge acceleration in Apple's revenue growth -- as was the case three years ago with the iPhone 6 family. If that occurs, the stock price could just keep rising.
Apple Stock Performance, data by YCharts.
iPhone sales have stagnated
After growing explosively between 2007 and 2015, iPhone sales have stagnated in the past two years. In fiscal 2016, revenue for the iPhone product line plunged 12% year over year. While sales have recovered somewhat in fiscal 2017, Apple's iPhone revenue has been growing at a low-single-digit rate recently.
There are a few likely reasons for this sales slowdown. First, excitement for Apple's first large-screen phones (the iPhone 6 and iPhone 6 Plus) drove a huge sales surge during fiscal 2015. In the past two years, iPhone sales have normalized to a more sustainable level.
Second, the strong dollar has put pressure on iPhone sales in a number of international markets for the past couple of years. Third, hype related to the new iPhones (which are expected to hit the market later this month) has negatively impacted sales of the existing models during 2017.
Growth could accelerate in a hurry
Past experience shows that the current iPhone slowdown could quickly give way to strong growth. Unit sales growth will likely return to double-digit territory once Apple resolves any initial supply constraints, as there is massive pent-up demand for new iPhone models. Moreover, the average selling price (ASP) will soar, as the flagship iPhone 8 model may have a starting price around $1,000. (For comparison, ASPs have been in the $600-$700 range recently.)
The iPhone's average selling price has been in a range of $600-$700 recently. Image source: Apple.
Indeed, during fiscal 2015 -- which began immediately after Apple began selling the iPhone 6 and iPhone 6 Plus -- iPhone unit sales surged 37% year over year, while iPhone revenue skyrocketed by 52%. In the prior year, iPhone revenue had increased by just 12%.
Thus, iPhone revenue growth accelerated by a stunning 40 percentage points after Apple's last major iPhone revamp. While the base growth rate for the iPhone product line is lower now, it's still entirely possible that iPhone revenue will grow by 30%-40% in the upcoming 2018 fiscal year.
Other products will help, too
Meanwhile, Apple's other product lines are set to contribute to the company's revenue growth in the next year. Last quarter, Apple's non-iPhone revenue increased by 12% year over year; in the prior quarter, it rose by 11%.
If this pace continues, Apple's non-iPhone revenue could increase by nearly $10 billion in fiscal 2018. Sales growth for Apple's other products could also accelerate, if a surge in iPhone sales drives faster growth for the App Store and more accessories purchases. Additionally, the new HomePod smart home assistant is scheduled to become available in December.
By contrast, the rest of Apple's business (aside from the iPhone) detracted from its results in fiscal 2015. While iPhone revenue rose by about $53 billion that year, total company revenue increased by "only" $51 billion.
Apple stock has plenty of upside
It's possible that demand for a $1,000 iPhone won't be as high as Apple hopes. Recent surveys have produced mixed findings. But if enough Apple fans are ultimately willing to pay up for the iPhone 8, the coming year could see a repeat of the iPhone 6 product cycle, when demand easily outstripped investors' relatively bullish forecasts. If that's the case, then Apple stock could keep building on its 50% gain from the past year.
