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Apple’s big iPhone event Tuesday gave investors a lot to take in. Among the major new product announcements were the iPhone 8 and iPhone 8 Plus, a new 4K Apple TV and the Apple Watch Series 3.
Oh, and one more thing: Apple unveiled the iPhone X, arguably its most important device since the original iPhone. There were more announcements packed into this year’s iPhone event than at any other event in the Tim Cook era.
Apple stock has soared this year, and needs a strong catalyst for the rally to continue. The question is, was the iPhone event enough?
Apple Devices: iPhone X
The iPhone X was the highlight of the event, and for good reason. It has revolutionary features not seen before on Apple devices. For example, the phone features facial recognition technology. It also has the highest-resolution pixel density ever on an iPhone.
Apple is also entering augmented reality, in which images from apps on the iPhone are super-imposed over live video.
There are even more new technologies on the iPhone X. It has two hours more battery life than the previous iPhone, and for the first time, supports wireless charging. Not only that, but the iPhone X will no longer feature the home button. Instead, the phone can be unlocked by Face ID.
The iPhone X will be $999, and ships on Nov. 3.
Meanwhile, the iPhone 8 and iPhone 8 Plus will feature improved display, louder speakers, and a glass exterior reinforced with steel. Like the iPhone X, the iPhone 8 models will also have wireless charging. The iPhone 8 Plus will cost $799.
Separately, the 4K Apple TV will include live sports and news, and Apple is working with streaming services to improve content resolution. The new Apple TV will cost $179 for a 32 GB version, and $199 for the 64 GB model.
Lastly, the Apple Watch Series 3 will be able to make phone calls, will allow music streaming, and will host a variety of new health monitoring, such as heart-rate readings. The Apple Watch is the No. 1 smartwatch in the world.
Mixed Market Reactions
After the iPhone event, initial reaction was mixed. It seems investors “bought the rumor and sold the news.” Apple stock gained 1% early on Tuesday, but by the end of the day had turned lower. Part of the disappointment seemed to pertain to the November release date; some investors were anticipating the iPhone X would begin shipping immediately.
Top Apple analyst Gene Munster of Loup Ventures predicted Apple shares would see a 7% to 8% drop in the coming weeks due to investor disappointment over the event and concern regarding the 2018 March and June quarters.
Another bearish commentary came from noted KGI Securities analyst Ming-Chi Kuo, who wrote that the iPhone X is expected to suffer production shortfalls.
The iPhone prices might be a tough pill for investors to swallow. No company has tried to sell a smartphone for the nearly $1,000 price tag of the iPhone X. Indeed, it’s a considerable jump from the cost of previous iPhones. Consider that last quarter, the iPhone ASP was just $606.
What Does It All Mean for Apple Stock?
Despite all the hype that usually comes with an iPhone event, Apple stock barely budged on the news of the new Apple devices. In fact, shares ended the day slightly lower. It could be that investors have already anticipated these new products, and had priced the event in to Apple’s valuation.
Apple shares have been among the market’s best performers so far this year. The stock is up nearly 40% just since the beginning of 2017. This has elevated the valuation multiple above its historical averages. Consider that Apple now trades for a P/E ratio of approximately 19, compared with 12 at this time last year.
Apple stock is still cheaper than the S&P 500 Index, which has an average P/E multiple of 24. And, Apple has a 1.5% dividend yield, with the potential for 10% dividend increases each year. It also has arguably the best balance sheet in the entire market; Apple ended last quarter with $261.5 billion in cash, marketable securities and long-term investments. This provides a wide margin of safety, and allows Apple to continue investing in product innovation.
Apple is a very high-quality business, and investors who already own the stock should keep holding. That said, investors sitting on the sidelines might want to wait for a better buying opportunity before jumping in.
Disclosure: The author is personally long AAPL.