Apple Inc. ($AAPL) is the most valuable publicly-traded company of all time, with a market value that reached over $900 billion in November 2017. The tech giant funded in 1976 by Steve Jobs, Steve Wozniak and Ronald Wayne, could become the first company to be worth $1 trillion, however many analysts are skeptical on the long term.
Uncertainty has arisen on Monday, as Apple announced a deeper than expected cut to the production line of iPhone X, due to a weak demand for the new smartphone: the production will be slashed by 50 percent, down to 20 million from an initial estimated of 40 million units. At the same time, with a forecasting net income of at least $19bn, Apple is set to break its own record for profitability, mostly due to good sales during the Christmas period.
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The Christmas sales may look exceptional, but the under performing iPhone X may indicate, after more than 10 years of success, a slowdown in the impressive iPhone cycle. The debate over the iPhone X is open, and some point out that is not the first time for Apple products to under perform in this period of the year. In December 2017 emerged reports indicating that iPhone 7 sales were selling “more sluggishly than expected”, and in January 2016 Apple announced a 30 percent production cut for its iPhone 6 and iPhone 6s.
The importance of the iPhone for Apple
Apple is sitting on a big mountain of cash, as the company is dominating the smartphone market – at least in high-end segment – from over 10 years, after a recovery driven by a series of innovating products squirm out of Steve Jobs’ great mind. The liquidity of the company is huge enough to face any kind of crisis, as long as the company is able to detect and correct its own mistakes.
By the other hand, while Apple’s liquidity is without doubt impressive, it is good to remind that over 50 percent of Apple’s revenues are made by the iPhone line alone. In a worst case scenario, where iPhone is wiped out by the next mobile revolution, Apple would lose more then half of its current value. This is not so unlikely to happen, as Apple seems to have lost its innovative power since Steve Jobs passed away, and it is now relying on iPhone’s incremental innovation to fill its treasure trove. The mobile market in the long term is almost unpredictable, and one single disruptive innovation could became a serious treat even to a tech giant like Apple, especially when the company is confused on how turn its money into killer applications.
Apple stock ($APPL): 3 possible scenarios for the long term
Apple stock’s monthly chart tells a lot about the company and its price history. First of all, despite all concerns caused by the production cut, we have to point out that the decline of the stock is not so alarming, as it doesn’t affect the bullish trend: prices are still above the uptrend line we have drawn from 2008 low.
Another interesting thing we can notice on monthly chart are the two peaks we had since the beginning of the rally: one in 2012 and the second in 2015. These two peaks identify two respective waves, as prices consolidate after touching an ATH. The next movement and the recent sales may suggest a new consolidation phase, which could lead prices back to the 2015 high, at $134, or lower till the bullish trend-line (yellow line).
Afterwards, we can anticipate 3 possible scenarios suggested by the pattern analysis.
In the first case, which is also the most optimistic, we have an immediate rebound after the consolidation period, with the stock that will breakup the previous ATH.
In the other cases we can forecast the formation of a Head and Shoulders pattern, one with a breakout of the neckline and another where prices rebound, marking the beginning of a new bullish trend.
In this latter case, once prices will hit the yellow line, or the second horizontal blue line (near $100), the stock will resume its long up-trend. This scenario is also quite positive, however since we analyzing a monthly chart we need to consider that the up-trend will not be recovered until late 2019 or 2020. Investors looking to long-term opportunities can buy the stock once prices hit the yellow line for the first time, putting a stop-loss below the second horizontal blue line and a target prices to $165, a second to $200 and third to $220.
In the worst case scenario we have a Head and Shoulders formation, followed by the breakout of the neckline, which may match with the yellow line or lower with the second horizontal blue line. The breakout will mark the end of the bullish trend and the beginning of a new bearish course, which will have the first target-price at $80 and the second at $50.
Our analysis, although it is designed for the long-term, can give us some indication about short and mid terms. In the next days we should have an indication whether or not we are in front of a new peak, and if this will be the case it could mean just one thing: Apple stock will bleed for the entire 2018.