The Apple Watch: 10 Times Bigger Than the iPad

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apple-watchToday is the big day. It’s the official launch of the Apple Watch, the first new product category for Apple (NASDAQ: AAPL) since 2010. Of course, Apple has released numerous new editions of its iPad, iPhone and iPod in the last five years. Many of these products have been substantial upgrades.
The Apple Watch has already been a huge product launch … even before its official launch date. One research firm estimates that 1.2 million Apple Watches were sold within 24 hours of being available for online purchase. Another firm estimates that Apple will produce 1 million to 2 million Apple Watches per month.
One well-respected Apple analyst and blogger named Carl Howe has even bigger expectations. Howe thinks that Apple will ship 3 million units in the two weeks following the official release. Based on a product mix between the Sport, Watch and Edition versions, he expects sales for this period will top $2 billion.

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This tells us that the Apple Watch is a much larger launch than the iPad. In fact, 3 million units and $2 billion in sales would make the Apple Watch 10 times the size of the iPad launch.
Of course, Apple is a much bigger company today. Its upcoming fiscal quarter – ending in June – encompasses the Apple Watch launch. For that quarter, analysts expect the company to report sales of just under $47 billion.
That means that Apple Watch sales from the launch period would equal 4.3% of the company’s quarterly sales. That’s nearly three times the sales contribution, compared with the iPad launch.
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Apple Stock: Impact of the Watch
If the initial estimates hold up, the Apple Watch impact will be huge.
The wearable technology market has many players fighting to grab market share, including established players like Samsung and Motorola, and startups like Fitbit and Jawbone. These devices include primarily smartwatches and health/fitness monitors.
Last year, market research firm IDC estimated that the wearable tech market reached 19 million units in 2014. Meanwhile, Deloitte estimates that total sales last year were $3 billion.
These initial estimates show that the launch event sales of the Apple Watch could be greater than the entire wearable tech market last year. That shows just how influential Apple can be in breaking ground for a new product category.
Looking forward, I expect that the Apple Watch will set the standard for wearable devices. That should bring attention to the entire product category, and create considerable value for Apple shareholders.
Apple shares have been trading in the range of $122-$133 since mid-February. This sideways movement for Apple stock creates a buying opportunity before the next leg up.
Specifically, I expect Apple could benefit from four events that are on the immediate horizon:

  1. Stronger Watch sales than expected, and largely positive press and reviews
  2. Dividend increase of 8%-10% on April 27
  3. Share repurchase program expanded for 2015
  4. Quarterly earnings that exceed expectations

Longer-term, I think Apple will be the first company to ever achieve a $1 trillion market capitalization. Such a move would mean a 35% rise for Apple shares. I expect that rise in share price is very likely over the next two years.
Today, Apple shares are extremely inexpensive. On a P/E basis, shares trade at 14.6 times fiscal 2015 EPS estimates. After “backing out” the cash on the company’s balance sheet, the valuation drops considerably, to roughly 10 times earnings.
In this market, I’m hard pressed to find many companies trading at 10 times earnings. It’s even more unusual to find cheap companies in the technology sector that are growing sales at 25% per year.
My advice is simple: If you don’t own Apple stock, pick up some shares before the positive news starts coming out. The cheap valuation means there is little downside to Apple stock. And with multiple ways to win with Apple, this investment is a no-brainer.
If you already own Apple stock, there is another little-known way to profit from the Apple Watch. Our research shows that it could create big profits for early investors. Click here for all the details.

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