One thing that people, especially investors, really hate is uncertainty. That's, in my view, precisely why shares of iDevice maker Apple (NASDAQ:AAPL), which has profited immensely from the growth of the modern smartphone, trade at a meager 10.43 times trailing-12-month earnings and about 10 times analyst consensus estimates for fiscal year 2016.
The fact that Apple is so darn cheap, even more so once one backs out the net cash that the iDevice maker has on its balance sheet, has been cited as a key reason that investors should buy Apple here. I understand this argument, and I understand it well, but I think that Apple falls into the category of stocks that's cheap for a reason.
That reason, as you might have guessed, is the uncertainty that surrounds Apple's long-term future.
iPhone sales decline is downright scary
Ahead of the iPhone 6s cycle, there were widespread fears that Apple might struggle to see growth in iPhone shipments or, in the really bearish scenario, a slight decline.
However, multiple credible data points from various news reports and from the financial results of major suppliers suggest that Apple will not only not see iPhone growth during fiscal year 2016, but that it will actually see quite substantial year-over-year declines for the year.
In a previous article, I estimated that iPhone sales could come in anywhere between 203 million to 213 million (208 million at the midpoint of the range). At least two recent analyst estimates (one from Credit Suisse, the other from Raymond James), published after my own, have come down to around 207 million.
Given that the vast majority of Apple's revenue comes from iPhone (all of Apple's other businesses combined don't even come close to iPhone), this is downright disturbing.
So, where's the uncertainty?
The uncertainty here lies in what to expect for the future of the iPhone. What absolutely nobody on the planet knows right now is whether this is the beginning of a structural decline in iPhone sales or if this represents a mere blip as a result of either the tough year-over-year comparison or -- gasp! -- competitive pressures.
Everybody has their own personal hypotheses -- I certainly have mine -- but investors won't have a good read on what the truth is until Apple launches its next-generation iPhone in the fall of 2016.
What I believe will make things quite uncomfortable for Apple stockholders, beyond the fact that the iPhone 6s/6s Plus aren't doing well when they are arguably the "best" smartphones on the market, is that the competition will be launching their responses to the iPhone 6s/6s Plus in the coming months.
This means that Apple not only has to deal with the issues that hurt it in late 2015/early 2016, but its products will have to contend with much-improved devices from the competition, potentially leading to market segment share loss.
Now, in an environment in which Apple is posting steady year-over-year growth, the fears around market share loss wouldn't be all that great (since Apple will have delivered the financial goods to investors before the competition delivered their products), but in this environment, I would argue that share loss can make this already bad situation worse.
I'd rather be a little late than far too early
I look forward to what CEO Tim Cook has to say about the current iPhone demand environment and his views about the future of the iPhone on the company's upcoming earnings call. Although even he can't predict the future, he has enough visibility into the iPhone product pipeline to know if there are any big changes/innovations coming that could help to stimulate demand.
That said, I'd rather wait for the dust to settle and for the first evidence that things will be OK for the iPhone business to appear before buying in. Waiting will probably mean that I'll get in at a price that's higher than the bottom but that's a price I'm willing to pay all day for the peace of mind I'd get in return.