Despite beating analysts' expectations on revenue and income, Apple (NASDAQ: AAPL) sold off after it reported earnings in late July. While the stock is currently trading well above my cost-basis, the post-earnings dip, coupled with an overwhelmingly strong quarterly filing, provided a nice opportunity to add to my investment in Cupertino's finest.
- iPhone upgrades -- Analysts were disappointed by the company's iPhone shipments this past quarter -- they clocked in at 47.5 million against expectations of 49 million units. A miss is a miss, but only 27% of users that were part of Apple's installed base prior to the iPhone 6 and 6 Plus launch have upgraded to the most recent models. There could be tidal waves of upgrades coming in the next few quarters, especially if Apple sticks to its historical release calendar and unveils the next version of the iPhone this fall.
- Guidance? Shmuidance -- One of the other most cited reasons for the post-earnings sell-off was the supposedly weak guidance provided by the company. Analysts had set revenue expectations for the coming quarter around $51 billion. The company guided for $49 to $51 billion. So the upper bound of their guidance is set to hit expectations, and as fellow Fool Adam Levine Weinberg pointed out, Apple has provided fairly conservative guidance on revenue and margins recently and beaten it handily. I'm expecting that trend to continue.
- Apple Watch sales -- In early July, market research surfaced that called into question the staying power of sales for the Apple Watch, estimating a daily sales drop-off of 90% from the product's launch week. In Apple's conference call, Tim Cook made it clear "On the Watch, our June sales were higher than April or May. I know -- that's very different than what some of the -- is being written, but June sales were the highest." Apple management also mentioned that the product beat internal estimates.
- China, China, China -- The region is Apple's second largest market, and experienced year-over-year revenue growth of 112% last quarter. China still has a ways to go to overtake North America, but Tim Cook and management expect the region to be the company's biggest market at some point in the near future. The country's growing middle class, plus Apple's plan to nearly double its retail footprint in the region by midway through next year should continue to fuel strong growth in that market.
- iPhone ASP's -- Apple's foray into the phablet space with the iPhone 6 Plus made it clear, there was plenty of additional money to be made by pushing into higher priced segments of the market. The company has another lever they can pull to boost prices -- storage. Early reports indicate the company plans to bump the base storage on their next version of the iPhone to 32GB, up from 16GB on the iPhone 6. That increased capacity could push up ASPs
- Big Mac -- Gartner estimated that in Q2, PC shipments were down 9.5% year-over-year industrywide as OEMs dealt with the impact of the strong dollar and continued to feel the competitive heat from tablets and smartphones. And yet, Apple's Mac segment experienced 9% growth over last year's fiscal Q3. The segment only comprises 12% of Apple's revenue, but its staying power in the face of an industry downturn reflects Apple's strong brand cachet.
- Attractive valuation -- Even with all of these potential growth opportunities, the company trades at a price-to-earnings ratio of roughly 15, well below the market's current P/E of 21. Despite its historic run over the past few years, the stock remains a high-growth bargain.
Every now and then, the frenzy that follows an earnings release and the irrationality of Mr. Market combine to gift-wrap investors a chance to get great companies at extremely attractive valuations. Given the bevy of growth catalysts and its current valuation, the only thing that should be pushing Apple down is the massive bow sitting on top of it.
The next billion-dollar Apple secret
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