Could 2019 Be the Year of Apple?

Although Apple Inc. set up a new milestone in 2018, after becoming the first trillion-dollar company on the US stock market, the last quarter of the year took everyone by surprise in terms of the stock’s performance.

Weakening numbers drove AAPL 40% down

Starting from October, volatility spiked on the US stock market and the FAANG stocks started to lose significant market value. Interestingly, though, AAPL stock trading did not follow the same path, all until November 1st when the price started an impulsive plunge.

Although earnings had been above expectations, what triggered heavy selling was a controversial decision to change the way sales numbers will be published in the future. Many analysts treated the move as an attempt to hide weaker iPhone sales, which is still the main driver of the company’s earnings.

Should anything change in 2019?

At the beginning of January, AAPL stock trading took an upturn and the price managed to bottom out close to the $142 level. In line with the market performance, the stock gained more than 25% until the time of writing, but questions about the sustainability of the move are now emerging.

What’s interesting to note from the quarter that ended in December is the increase in R&D (research and development spending), which had spiked to 14.5% year-over-year just in the last 2018 quarter. Apple invested $3.9 billion, equivalent to 5.63% of the total revenue.

From a short-term perspective, the move had contributed to a decline in operating margins, which had declined for 12 out of the last 13 quarters. Just in the last quarter of 2018, operating margins had declined by 2.07% YoY.  Declining margins are widely regarded as a headwind for the stock price but could support it in the long run.

Many critics blame the fact that Apple did not manage to come out with any revolutionary product in the last few years, thus helping other competitors like Huawei and Xiaomi to grow their market shares. High pricing had been a huge drag on iPhone sales, which is why the company recently decided to slash the price of iPhone XR.

However, the boost in research spending is showing that Apple is fully aware it needs to come with better products, so the long-term support for the stock price will be determined by that. It is obvious that the company wants to grow its services revenue, but until the transition will be completed, new devices will influence by a large future performance.

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