A version of this article originally appeared on Fool.com, by Daniel Sparks
WASHINGTON, DC Apple(NASDAQ:AAPL.US) has big plans on Tuesday. Hosting an event at the Flint Center, where the company introduced the original Mac, Apple seems to be communicating that the event is extra special. Apple Internet, software, and services chief Eddie Cue boldly said at the 2014 Code conference earlier this year that Apple has the best product pipeline hes seen in his 25 years at Apple for later this year. Perhaps well see many of these products that Cue was referring to on Tuesday.
While a rumored iWatch may end up taking center stage at the event, its still difficult to overstate just how important Apples new iPhone continues to be to Apples business. After all, iPhone sales account for a hefty 53% of the companys total revenue. With that said, though the iWatch may steal the show, it is the iPhone that will continue to have the biggest impact on cash flow. And cash flow, over the long haul, will ultimately drive Apples stock price.
4.7-inch and 5.5-inch iPhone 6mockupspictured with the 4-inch iPhone 5s. Source: 9to5Mac, used with permission.
While analyzing rumors and tech specs for Apples next-generation lineup of iPhones is fun, its bigger picture trends that matter the most to investors. Going into the event, here are the key trends surrounding Apples iPhone 6 that can help us predict the impact the iPhone 6 will have on the stock.
Apples iPhone business is as healthy as ever
Despite the proliferation of mostly cheap Android devices, iOS continues to expand its share of the mobile phone market. Yes, Apples share of the globalsmartphonemarket is significantly lower than it was a few years ago, but total annual iPhone sales continue to rise.
Data for chart retrieved from Apples quarterly SEC filings.
And though Apple doesnt break down its gross profit margin by product category, the companys overall gross profit margin has been on the rise for four quarters in a row.
Theres no sign that the next-generation iPhone models wont help Apple continue this trend.
Dont expect enormous iPhone sales growth
While some analysts are expecting Apples iPhone sales growth to kick it up a notch in the coming twelve months on the strength of pent-up demand for the first Apple smartphone larger than four inches, investors shouldnt expect any shocking growth. The days of triple-digit year-over-year growth in iPhone sales are long, long gone.
Realistically, the best-case scenario for iPhone sales growth in the coming twelve months is probably somewhere around 25%, up meaningfully from the 14% year-over-year growth Apple posted in the trailing twelve months. But thats thebest-casescenario. Giving conservatism the weight it deserves, 15% growth in unit sales for Apples iPhone business in fiscal 2015 is a good bet.
Apple doesnt need big growth to reward shareholders
Valuation matters. And, fortunately for Apple shareholders, the stocks valuation today prices in very little growth. With a price-to-earnings multiple of 16, mid single-digit growth in earnings over the long haul would be plenty to justify an investment in Apple stock at $100. This sort of growth would enable Apple to continue to reinvest in new growth opportunities, pay out meaningful dividends to shareholders, and repurchase more shares.
AAPL P/E Ratio (TTM)data byYCharts
While the ever-active Apple rumor mill speculates about the features that will be included in Apples iPhone 6 ahead of the Tuesday event, investors can at least rest assured that there is a very high probability the new models will play a key role in helping Apple to continue to grow the intrinsic value the stock over the long haul, rewarding investors. While investors shouldnt expect Apples iPhone business alone to help Apple stock crush the S&P 500s performance in the coming years, it is still a big enough catalyst to make slight outperformance likely.
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Both Daniel and The Motley Fool own shares in Apple.
