Michael Kramer and Mott Capital’s clients own AAPL

Apple Inc. (AAPL) shares traded about 4% lower in the after-hour session after iPhone sales came in weaker than expected. This weakness should come as no surprise, however. Consumers were likely waiting for the new iPhone, which will introduce the fifth generation of wireless technology (5G) to the brand.

If anything, it may be disappointing that the company didn’t come up with any guidance in the first quarter of 2021. After all, the launch of the 5G iPhone is the most anticipated release since the launch of the iPhone 6, which gives investors expectations for a multi-year upgrade cycle.

Mixed results

The company reported total revenue of $ 64.7 billion, which was about 1.6% better than consensus analysts’ estimates of $ 63.7 billion. Additionally, earnings were 4.3% above expectations, at $ 0.73 per share versus estimates of $ 0.70. IPhone sales missed the mark at $ 26.4 billion versus estimates of $ 27.9 billion. According to Refinitiv, the services had sales of $ 14.5 billion, better than forecast of around $ 14.1 billion.

Supercycle

Investors expect a lot in the first quarter of 2021. Analysts estimate iPhone sales will grow 6.5% year over year to around $ 59.6 billion. This is expected to increase total sales by 10% to $ 101.0 billion for 2021. Due to the lack of guidance, investors and analysts feel insecure and have to try to track the new phone’s performance.

Apple sales estimates

Refinitive

But there is life after the iPhone. Despite the poor performance in the fourth quarter of the fiscal year, the company was able to exceed expectations. Over the years Apple has built a very diversified business on which more than just iPhone sales depend. Service revenue continues to grow in mid-teens. While wearables have surpassed iPad sales and continue to grow rapidly, rising to nearly $ 7.9 billion.

Still, the 5G iPhone upgrade cycle will be most important to investors. If the super cycle lives up to expectations, it will likely result in sales growth over the next few years. It can also help acquire new owners and generate more users and greater profits for its services and wearables. While the stock may trade lower after the results, it is unlikely that the craze for the new iPhone builds will continue.

Vulnerable

Apple P / E ratio and earnings estimates

Apple P / E ratio and earnings estimates

Refinitive

Apple’s problem is that the expectations of the new iPhone are so great. The earnings multiple of the stock has risen to a high earnings multiple. This leaves the stock vulnerable to significant price fluctuations to news that could damage or question the bull narrative.

However, as long as Apple can continue to operate as investors have become accustomed to over the years. Then the long-term outlook remains positive.

Michael Kramer is a financial market strategist and portfolio manager of the Mott Capital Thematic Growth Portfolio.

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