Apple has a long history of developing cutting-edge products. That’s partly why it has been reaching new multi-year highs. Still, disruptive new technologies could overtake its latest offerings and slow its growth.
APPLE INC. (Nasdaq symbol AAPL; www.apple.com) aims to cut its reliance on the iPhone smartphone, which supplies nearly 70% of its revenue, with several new products.
One example is its recently launched Apple Pay service, which lets users add their credit card information to their phones. They can then use them to make purchases at any tap-and-pay-enabled cash register and, in some cases, online. To prevent fraud, the phone will confirm the user’s identity by scanning their fingerprint.
So far, Apple Pay is only available in the U.S., but local banking rules could make it hard to bring the service to other countries. That could force the company to form alliances with foreign banks, payment processors and wireless carriers.
Apple Pay also faces strong competition from other mobile payment systems, including those based on Google’s Android software. Android phones now account for 76% of the worldwide smartphone market, compared to just 20% for Apple.
As well, the company will soon start selling the Apple Watch, which can display messages, photos and other information. This product needs an iPhone to function properly.
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Tech stocks: High cash and low debt aid new product development
Apple holds cash and investments of $178.0 billion, or $30.54 a share, so it can easily afford to keep developing new products. As well, its long-term debt of $32.5 billion is just 4% of its market cap.
The stock hit an all-time high of $133.60 (split-adjusted) in February 2015, but it has since moved down to the current price of $131.
Apple now trades at 14.9 times the $8.65 a share it will likely earn in its 2015 fiscal year, which ends September 30. That’s a reasonable p/e ratio in light of its strong brand and loyal clientele. The $1.88 dividend yields 1.5%.
Nonetheless, the stock could drop if Apple Pay and the Apple Watch fail to meet investors’ high expectations.
Recommendation in Wall Street Stock Forecaster: HOLD for now.
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