Are the Days of Making Easy Money at Apple are Ending

Apple (AAPL: Nasdaq) has been on a meteoric climb since coming out with their new flagship iPhone. Their market cap is now more than $700 billion making them the world’s most valuable company. Is it worth more? Quite possibly, but how long will this last? Some analysts, like myself, are looking at the math and seeing a possible valuation near $1 to $1.1 trillion. Still there are risks, Apple is a one trick pony. They have a great phone. What else do they offer should their phone sales fall?

There is also the strong possibility we will start to cannibalization as traders look for profits. The iPhone profits are soaring but their iPad is still underperforming. We still have to see how their smartwatch does. If that is a hit, then there is room for more growth in revenue and the stock price will react favorably. You will see a stable revenue base with Apple, but will it be big enough to get to a market cap of $1 trillion. That is the difficult task ahead and there are too many factors to guarantee such a move.

In reality, a stock price of $120 to $123 per share is more of a reality. This is below the current price level of $126. This means the days of making easy money on Apple have ended.

Apple has to stop relying solely on their iPhone and expand their catalogue of products. The iPad is not a great hit. The addition of the watch is a good start but will it tremendously help revenue? There is a strong stickiness to the iOS ecosystem that will help Apple with repeat iPhone sales, so that helps. However, the easy money has been made. There is some more upside to be made but that is near-term not long-term. If you look at the smartphone market, two or three years out, with the manufactures from China offering cheaper models, then competition will increase in mobile phone hemisphere. This will erode profits. Apple will need to offer a mid-range or low-range iPhone to compete and that is not their business model right now. Unless Apple does this, we will see limited growth with their high-end device over the long term.

Easy money with AAPL stock is coming to an end.