There's a reason that Apple (NASDAQ:AAPL) trades at such a dirt cheap multiple: serious concerns about net income growth. While many Apple investors are confident in the company's long-term prospects, the concern about net income is real. Indeed, the company generated a whopping $41.7 billion in net income during its fiscal year 2012 and only managed to generate $37 billion in net income during FY2013. That's a whopping 11% drop. Until Apple can return to year-over-year net income growth, the shares are likely to continue to be cheap.

How are we doing so far?
During Apple's fiscal first quarter of 2014, the company generated $13 billion in net income – flat, year over year. Apple saw raw gross-margin dollars improve, from $21 billion to $21.84 billion. But a substantial increase in research and development, a bump in selling, general and administrative expenses, and lower "other income" kept net income flat. Operating income -- stripping out the "other income" -- was actually up slightly over the prior-year period, from $17.2 billion to $17.4 billion. So, in the fourth quarter, Apple managed to stabilize the situation.

Unfortunately, the guidance given -- despite the iPod decline and forex excuses -- suggests that the second quarter will be pretty massively down on the net income side of things from the year-ago quarter. Digging into the guidance given, and assuming the company hits the high end of it, Apple is looking at $9.3 billion in net income. That's a slight decline relative to the second quarter of 2013, during which Apple generated $9.5 billion in net income. If Apple can deliver gangbuster Q3 and Q4 results, then Apple can return to growth. But so far, we're par for the course.

What could drive such growth?
The multi-billion-dollar question is just how Apple could drive such bottom-line growth. There's an assumption that Apple will continue to grow the top line with iPhone 5c/5s sales, but these will likely suffer from the traditional seasonal effects and not generate enough incremental revenue to make this work. Apple could potentially choose to refresh the iPad Air, which could drive an uptick in iPad sales. However, this probably wouldn't be enough.

What Apple really needs is one -- or more -- of the following:

  • A bigger iPhone at a higher price point that carries with it higher gross-margin dollars per unit than the standard 5s.
  • A completely new product category that can drive billions of dollars in incremental revenues  -- perhaps the vaunted iWatch.
  • A larger iPad -- the "iPad Pro" -- that could drive up average selling prices and gross margins per unit relative to the iPad Air.

Additionally, in order to comfortably fit these new revenue streams into the current fiscal year, at least one of the launches would have to happen within the next fiscal quarter to really give the product some runway. Interestingly enough, Apple is unlikely to bake any such upside into its guidance since there is no way to really know how well such a product will do in the marketplace. So, when Apple issues guidance at its coming report, keep in mind that if it launches a new product within the quarter, it could revise guidance upward depending on the initial sales number of the new category.

Foolish bottom line
Apple is a fantastic company that just needs to get net income back on a growth track. Buybacks will keep earnings per share going upwards, even in a flat net-income situation, but that's not enough to command a meaningfully higher multiple than the company commands today. Once Apple proves that it's not another BlackBerry/Nokia -- once the net income began to dive, that was it -- it could command a much richer multiple and, in turn, retest those $700 highs from oh-so-long ago.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.