Apple Inc. (NASDAQ:AAPL) stock could get a serious lift from its Services business

Apple Inc. (NASDAQ:AAPL) stock could get a serious lift from its Services business

Apple Inc. (NASDAQ:AAPL) stock could get a serious lift from its Services business

It will be a very interesting next few years for Apple (NASDAQ:AAPL) as the company continues to pivot its business model. We’ve seen a more than 40% haircut in Apple stock from its fourth-quarter highs to its lows. That’s an extreme fluctuation for any stock, let alone for a company that was the largest by market cap before the decline.

With its changing business model though, it may be time to start rethinking Apple stock going forward.

Historically, the company has garnered a low valuation, in part because investors think of AAPL as a hardware company susceptible to the whims of consumers. That’s one reason why Apple has generally commanded a lower valuation than its mega-cap peers like Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG) NASDAQ:GOOGL).

Should the rhetoric change though?

Apple’s Business Model Is Shifting

Are you familiar with the razor blade business model? The strategy involves a company practically giving away a shaver with the hope of generating replaceable razor sales. The goal is to get consumers to replace the blades as they dull, essentially securing recurring revenue in the future. This type of business could be thought of as one of the early subscription models — the same model that cloud companies garner such a high valuation for.

Because of this secured revenue, companies will practically give the razor away for free in hopes of hooking new customers. AAPL is sort of like that, only instead of giving away iPhones and iPads, the company is generating record profits and commanding industry-leading margins.

As if this model weren’t profitable enough, Apple’s goal isn’t simply iPhone sales. Instead, it’s using this base of a billion-plus devices to drive Services revenue. Whether that’s through AppleCare, Apple Pay, iTunes, subscriptions services or App Store sales. As the number of devices grows and we become a more digitized economy, Apple is set to reap massive rewards.

There Are Risks

While iPhone sales are the company’s bread and butter, and although Services growth is robust — now churning out $10 billion per quarter in revenue — Apple isn’t immune. First, I didn’t like the company’s strategy in changing iPhone names. It’s the first time I’ve heard confusion from a large portion of customers. Because Apple makes great products, it means consumers don’t have to upgrade as often as management may wish. Either way, the added confusion doesn’t help drive any more customers through Apple’s front door.

Second, there has been a lot of pushback by companies — like Spotify (NYSE:SPOT) — and developers for the percentage fee Apple takes from App Store sales. Should Apple have to trim its fee, revenue and profit will be hurt.

Finally, whether we classify Apple as a hardware company, a software, services and subscription company or something in between, it all hinges on one thing: the consumer. If the economy falls into recession, Apple’s top and bottom lines will suffer.

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 179.21.

The projected upper bound is: 197.38.

The projected lower bound is: 181.49.

The projected closing price is: 189.44.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 5 white candles and 5 black candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 56.2971. This is not an overbought or oversold reading. The last signal was a sell 1 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 65.03. This is not a topping or bottoming area. However, the RSI just crossed below 70 from a topping formation. This is a bearish sign. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 0 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 67. This is not a topping or bottoming area. The last signal was a sell 0 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 9 period(s) ago.

Rex Takasugi – TD Profile

APPLE INC closed down -2.310 at 188.740. Volume was 18% above average (neutral) and Bollinger Bands were 5% narrower than normal.

Open High Low Close Volume___
191.510 191.980 186.600 188.740 43,845,292

Technical Outlook
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bearish

Moving Averages: 10-period 50-period 200-period
Close: 187.01 170.83 190.63
Volatility: 29 30 38
Volume: 35,231,112 29,279,724 33,430,830

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

APPLE INC is currently 1.0% below its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AAPL.O and have had this outlook for the last 40 periods.

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