Apple Investors Take It to 11 - The Wall Street Journal

In the time since iPhone 11 models went on sale, Apple’s stock has jumped more... — In the time since iPhone 11 models went on sale, Apple’s stock has jumped more than 4%. Photo: Chris Ratcliffe/Bloomberg News

Dan Gallagher

The Wall Street Journal

Biography

Oct. 8, 2019 7:03 am ET

Wall Street may have been lukewarm on the prospects for the iPhone 11, but Apple’s rank-and-file investors are excited. Perhaps a bit too much.

Apple’s new iPhone models went on sale a little over two weeks ago. In that time, the stock has jumped more than 4%, hitting a new 52-week high on Monday. Note that the S&P 500 has shed nearly 2% over the same period, due mostly to worries of a weakening economy and global trade disputes—neither of which are insignificant matters for a purveyor of expensive devices made mostly in China.

Some interest is understandable, considering recent signs that this year’s iPhone cycle won’t be as bad as feared. On Friday, Japan’s Nikkei newspaper reported that Apple told its suppliers to increase iPhone 11 production by 10%. Several analysts had already raised their own projections, citing similar feedback from the company’s supply chain. Wall Street’s consensus estimates for iPhone shipments in Apple’s current fiscal year have gone up by 3 million units since the new models went on sale on Sept. 20, according to FactSet.

Still, the iPhone is a mature business. The recent boost to targets still have iPhone shipments rising less than 1% for the fiscal year ending next September. And iPhone revenues are still expected to see a 1% decline in that time, reflecting the belief that more of this cycle’s sales may be concentrated among the cheaper models. Even the 5G iPhones widely believed to be coming next fall are only expected to lift iPhone revenue by 3% in fiscal 2021.

From night shooting mode to ultrawide lenses, Apple's latest iPhones have a bunch of new camera tricks. WSJ's Joanna Stern, with the help from the queen and some jousters, put all the new phones to the test at the New York Renaissance Faire. Photo illustration: Laura Kammermann / The Wall Street Journal

So investors may still be getting ahead of themselves. When the new iPhones went on sale, Apple’s share price had already jumped 38% for the year. That’s the biggest jump for the stock ahead of an iPhone launch since 2012, when Apple first started putting its new phones on sale in September. And the post-launch period is typically iffy, as Apple’s share price has fallen in three of the last seven years between the iPhone’s retail launch and the end of the year. The stock sank 28% in this same period last year.

Moreover, the stock is now trading at more than 18 times forward earnings, exceeding last year’s peak of 17 times. That’s the highest multiple Apple has fetched in nearly a decade, helped in part by a strong pace of buybacks that have reduced the company’s share count by more than 6% in the last 12 months. Many analysts argue that the company’s growing services arm warrants a higher multiple for the stock. But many of Apple’s services are still closely tied to its devices while others—including the soon-to-launch TV+ offering—are yet to be proven, and won’t contribute much in the near-term.

The iPhone 11 seems to be doing just fine. But at these heights, fine may not be good enough for Apple stock.

Write to Dan Gallagher at dan.gallagher@wsj.com

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