* Reports Q1 2020 results on Tuesday, January 28 after closing
* Revenue expectation: $ 88.38B
* EPS expectation: $ 4.54
No other earnings report is as important to investors as the report released by the iPhone maker Apple (NASDAQ 🙂 on Tuesday evening. The reason: the huge gains from Apple's shares fueled the strong rally of the US market in the past year.
After more than doubling in value, Apple is now priced to perfection, leaving the company with no margin to disappoint. The rally of the past 12 months was so powerful that it added more than $ 725 billion to the company's market capitalization, bringing it to around $ 1.4 trillion. The stock closed at $ 318.31 on Friday, only slightly lower than its record high of $ 323.33.
Stimulating this extreme optimism is the hope that Apple & # 39; s iPhone activities will remain robust and will get a new boost when the company releases its 5G models, which are currently expected in September 2020, giving consumers a lot of Have faster connection speed and iPhone shipments can see growth for the first time in two years.
With the prospects of expanding iPhone sales strong after 5G technology, Apple's fast-rising revenues from AirPods, smartwatches, and services such as streaming music subscriptions and mobile payments also reinforce the company's belief succeeds in relying on the more cyclical hardware company and is on its way to becoming a service company.
Last year's growth in its services department helped Apple offset the 14% drop in its iPhone business. According to analyst data from Bloomberg it is indeed predicted that revenue from services will rise to $ 54 billion in fiscal year 2020 and represent one fifth of total revenue, an increase of 18% at the end of 2019.
Apple's valuation jumps
Now that the growth of iPhones is reviving and Apple's service activities are growing strongly, investors are confident about the future. For the first time since 2011, the shares of the iPhone maker are traded at a higher price-earnings ratio than the
Apple is trading against 27 times the profit of last year, the highest level since 2008. This is comparable to a multiple of 24 for the S&P 500. Apple's persistent strength shows that investors have started to ignore the bearish scenario and recommend that investors avoid the company because the growth is too dependent on iPhones. The flagship product still contributes to around half of total sales, making the company vulnerable to a shift in consumer preferences and a potential slowdown in economic activity.
In addition to these growth factors, the macro environment, which became hostile last year after trade between the US and China and the growing risk of recession, is improving rapidly. The stock market is rising, volatility is low and employment is growing.
The US Federal Reserve is firmly on the sidelines and it seems unlikely that President Donald Trump would intentionally cause market shocks in an election year. This positive background ensures that consumers worldwide spend more money on gadgets. Apple's iPhone sales in China, the company's largest foreign market, rose by more than 18% last month according to CNBC calculations.
Bottom Line
Apple's pressure to expand its sales from services is clearly succeeding, while the growth of iPhones is reviving. This powerful combination justifies the current valuation of the share and its future growth potential. In our opinion, any weakness after the profit should be seen as a buying opportunity.
