Apple (NASDAQ:AAPL) stock is up 45% year to date, a remarkable performance for the biggest company in the world as measured by market capitalization. However, the best is not necessarily in the past. On the contrary, 2015 will most likely be crucial for Apple and its shareholders.
Apple stock is still cheap
Apple is delivering rock-solid financial performance. Earnings for the September quarter were comfortably above expectations, and forward guidance for the key holiday period was also above Wall Street forecasts.
The iPhone represented more than 63% of company revenue during the quarter. Healthy demand for the new iPhone 6 and iPhone 6 Plus was the main growth driver, as sales in the iPhone segment increased by a whopping 21% year over year.
However, Apple is still trading at a relatively cheap valuation. The stock has a forward P/E ratio of 14.6, a substantial discount versus an average forward P/E of 18 for companies in the S&P 500 index, according to data from Morningstar.
That moderate valuation seems to primarily be based on Apple's dependence on the iPhone for both sales and profit. While sales of the iPhone 6 and iPhone 6 Plus are off to a promising start, it's hard to tell how demand and competitive dynamics might evolve in the middle term.
Traditional cell phone manufacturers suffered a massive blow from the smartphone revolution, and Apple's success with the iPhone was almost lethal for investors in BlackBerry (NYSE:BB), whose stock has declined by more than 85% over the last five years. History offers plenty of evidence that today's winner can easily become tomorrow's loser, especially in such a dynamic and competitive industry. So Apple investors will want to look beyond the latest iPhones.
Beyond the iPhone 6
In 2015, both investors and consumers will be able to evaluate two crucial innovations from Apple: its recently launched Apple Pay mobile payments system and the upcoming Apple Watch smart watch.
Keep in mind that Apple delivered almost $183 billion in revenue during the last year, according to S&P Capital IQ data, so these new launches will barely move the needle in their initial stages, even if they turn out to be widely successful.
However, investing is about more than just the numbers. With Apple Pay and Apple Watch, the company is entering new product categories for the first time since Steve Jobs' death. Proving to the markets that it still has what it takes to successfully innovate and disrupt different industries could alleviate many fears regarding the company and its exposure to a single product category.
These innovations will most probably make a modest contribution to the company's overall sales and earnings in 2015, but they could do a lot to change investors' perception about the risks and long-term growth potential in an investment in Apple stock. This, in turn, could do wonders for Apple's valuation.
The iPhone 6 and iPhone 6 Plus will clearly be the biggest profit contributors for Apple next year. However, when it comes to investor returns, Apple Pay and Apple Watch can have a crucial impact in the coming year.
Andrés Cardenal owns shares of Apple. 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.