Why Apple’s stock is about to pop

September 16, 2015, 4:58 PM UTC
Apple Unveils New IPhones, IPad And Apple TV With Touch Remote
The Apple Inc. iPhone 6s Plus smartphone is displayed after a product announcement in San Francisco, California, U.S., on Wednesday, Sept. 9, 2015. Apple Inc. unveiled a wide-ranging lineup of new products, including updated iPhones, a revamped TV set-top box for playing games and watching videos, and a bigger iPad designed for business customers. Photographer: David Paul Morris/Bloomberg via Getty Images
Photograph by David Paul Morris — Bloomberg via Getty Images

Apple’s stock has taken quite a beating during the past month, but that tide is likely about to shift as preorders for the new iPhone are on pace to beat last year’s 10 million record. As of the market close on September 15, 2015, the stock was up to $116.28 per share and this steady climb will likely continue except for temporary blips. Even news that Apple is delaying its new operating system for the Apple Watch to fix some bugs is unlikely to hurt the stock much.

Despite market worries to the contrary, Apple (AAPL) has racked up solid preorders for the iPhone 6S. This includes robust orders in China as well, Apple’s second largest market. Concerns about China’s economy, ironically, were a major factor in the company’s stock price plunge of the last few months, so it seems that the market’s fears were premature.

More importantly, the strong start to the new iPhone’s sales indicates that the popularity of the device has not waned. Analysts who worry whether the iPhone has peaked are ignoring the stickiness factor for Apple products. The vast ecosystem that Apple has created is stickier than for most other leading tech companies, a 2014 analysis done by UBS analysts showed.

iPhone owners, for example, are likely to use MacBooks or iPads, which integrate seamlessly with their phone through a common operating system, rather than alternate devices which may be incompatible or more difficult to sync. The new Apple Watch, whose sales are trending up according to IDC, also requires the iPhone.

More: Apple: iPhone 6S preorders ‘on pace’ to be last year’s 10 million record

What this means is that switching from the iPhone can be expensive and inconvenient for consumers. Unless a competitor produces a game-changing device that is substantially better than the iPhone, there is little motivation for consumers, especially those who use other Apple devices, to switch.

As proof of Apple’s superiority, its market share in the second quarter of 2015 rose in comparison to its leading competitor, Samsung (although the growth rate for total smartphone sales declined). Apple’s market share rose to 14.6% from 12.2% a year ago, while Samsung’s declined to 21.9% from 26.2%, according to Gartner research.

In addition, Apple’s iPhone sales are driven heavily by the replacement of previous phones, so the new upgrade options available should help that process along considerably. Companies like Verizon (VZ) and AT&T (T) are now offering plans that give consumers more flexibility; about 14.9 million U.S. customers will be eligible for upgrades at the end of this year, which is a big leap from 5.3 million in 2014 when the iPhone 6 launched, The Wall Street Journal notes.

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Then of course there is the new financing plan that Apple itself will now offer buyers, which allows iPhone owners to pay for the phone in monthly installments and upgrade to the new model every year for free and pick a new carrier. It’s not very different from what the wireless carriers are offering and Apple’s plan isn’t cheap, but in any case, it should bolster the iPhone’s prospects due to the frustration users have felt for years about being tied down to specific carriers on long-term contracts.

More: Apple iPhone sale pace: What the analysts are saying

Even though the larger and more powerful iPad Pro targeted at businesses and the next generation Apple TV could also boost Apple’s fortunes, and the company doubtlessly has other interesting products in the works, the story in the coming months will be all about the iPhone. And, so far at least, it seems like a good story. Expect the stock to pop.

By how much? It’s impossible to know for sure but if the stock market response to the first full quarter of sales for the iPhone 6 is any guide, Apple shares went up by more than 20% in the month after Q4 2014 numbers were released.

S. Kumar is a tech and business commentator. He has worked in technology, media, and telecom investment banking. He does not own any shares of Apple or other companies mentioned in this article.

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