When the world’s largest company announces a sharp increase in sales and a sharp increase in profits, you would most likely expect a strong move in the share price, right?
Indeed this week, Apple’s share price did respond with a sharp move in its share price – a downward one!
This kind of move can wrong foot many investors – after all, logic would suggest good results, big profits, more sales equals a rise in the share price. But this is so often not the case, especially when I comes to the stock market.
Why is that?
The decision to buy a share today is based on what you expect it to do going forwards. As a result, the outlook or expectations for a company’s share price can typically override what the company actually has done. On the surface, this reflects the optimism or good news bent of markets. In other words, markets are inherently optimistic and, as a result, the assumption is prices continue to rise.
Where this becomes difficulty
Profit and profitability are hard figures – in the case of Apple in the Billions of dollars. Expectations or forecasts for future earnings really are guess work – highly skilled and invariably highly paid, but guesswork nonetheless!
Much is being based around the growth forecasts for the Chinese economy. Recent years have seen a slowdown, from the lofty growth rates in the early double digits, which has been a good thing. However, how much more the behemoth will slow, is the source of much conjecture.
Are we about to see a property implosion? Will the market bounce back after a very volatile couple of months? Will tensions over the South China Sea ignite a chain of events which truly upsets the apple cart (no pun intended)?
These are all huge variables and all of which beyond the control of the darling of Cupertino. What does remain in the company’s control is its product mix. This will increasingly be the focus of analysts and investors alike, as they monitor the shifts that will occur in the coming months for the business. As some of the historic cash cows, such as iPad slow, the next star in the making will be sought out!
While updates on the sales of the Apple Watch were conspicuously absent from the most recent update, one can only expect the worst from that. At its launch, many considered it a “gadget too far” and perhaps the market is now reflecting that. Nonetheless, iPhone sales remain robust with 47.5m sales made in the past 3 months!
What is next for the Tech Giant?
Streaming music is one, as yet, untapped area for Apple and one which is likely to be a great cash cow for the business. That said, with a reported cash on reserve stockpile of $200bn, getting material growth out of the business is an increasingly difficult challenge.
There has been speculation over acquisition
But this really isn’t Apple’s typical approach, where the build it from the ground up mindset is firmly entrenched in the company’s DNA.
Meantime, the performance of the company’s shares, my holdings included, will be something that is very closely watched!