Apple: An Income Growth Stock?

04/27/2016 10:30 am EST

Focus: TECHNOLOGY

Michael Berger

President & Founder, Technical420.com

Apple shares are down more than 7% during pre-market trading and this move comes after the company reported its first quarterly revenue drop in more than a decade and guided lower for the current quarter; Michael Berger, Associate Editor of MoneyShow.com, highlights the shares and thinks this weakness may create a great buying opportunity.

Is the company that was at one time one of the fastest growing companies in the world now an income stock?

After the market closed yesterday, Apple Inc. (AAPL) reported its first quarterly revenue drop in more than a decade. The company also forecast another revenue decline in the current period.

Who is to Blame?

The culprit for the weak quarter and weak guidance was the iPhone which has seen diminishing demand.

Although demand is slowing, Apple sold more than 51 million iPhones in the quarter. During the same period last year, the Silicon Valley giant sold more than 61 million iPhones.

With the introduction of a new iPhone model still months away, Apple investors are trying to gauge whether this report represents a broader slowdown in the smartphone market, or just another hiccup.

Returning Capital to Shareholders

Typically, a company increases its dividend or issues a special dividend when it does not have better growth opportunities. Most companies, though, do not have more than $200 billion in cash.

During the quarter, Apple reported $50.6 billion in revenue which came in below the average analyst estimate of $52 billion. Second-quarter sales slid 13% and IPhone shipments fell 16%.

Apple said it expects to generate between $41 billion to $43 billion during the next quarter. This came in below the average analyst estimate of $47.4 billion.

A Concerned Shareholder Base

As iPhone sales slow, investors are becoming increasingly concerned. They are wondering what might fuel the company’s next growth spurt.

Although a number of possibilities have surfaced from various media outlets, no one knows for sure.

The company is very secretive when it comes to development and this makes it hard to predict when or what might surface.

Working on Solutions

Apple has tried to come up with some near-term solutions for its longer-term problem. The company has been trying to strengthen its services business, which includes its iCloud storage platform, Apple Music and the App Store.

Success in any of these markets would be a major catalyst for shares because these offerings have larger margins and they typically commit customers to subscription services that generate stable recurring revenue streams over months or years.

Not Going Anywhere

Although Apple missed, it is not the end of the world. The company is still one of the strongest companies in the world and still has that cult-like following.

With over $200 billion in cash on the balance sheet, it will not be hard for Apple to find ways to stimulate growth.

Keep an eye on AAPL. Continued weakness may create a great buying opportunity!

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