Record iPhone Sales Bring Tough 2016 Comparisons: Apple, AAPL Shares Slide

Sales of Apple Inc.’s (NASDAQ: AAPL) iPhone have soared into the stratosphere. Beginning in the first quarter of 2015, when it sold over 74 million, iPhone sales have reached a whole new level.

iPhone unit sales in the third quarter; traditionally Apple’s slowest, even came close to matching iPhone unit sales in the first quarter of 2014; Apple’s busiest. The surge in unit iPhone growth, including a peak in year-over-year percentage iPhone unit growth in the first quarter of 2015, can be seen in the following chart. In the third quarter, iPhone sales were up 35 percent on a year-over-year basis.

Future iPhone Sales Growth Not Strong Enough For Market’s Liking

The price of any given stock is influenced by one thing more than anything else: per share earnings. This figure is calculated by dividing the total earnings of a company by the number of shares it has outstanding, although companies can issue more stock, which dilutes EPS, making it a more reliable indicator.

For example, largely on the strength of iPhone sales, Apple’s revenues increased on a year-over-year basis by 59 percent in the third quarter. Over the same period, Apple EPS grew from $1.28 to $1.81, or 41 percent. Apple EPS growth is lower than its earnings growth, which is why the market watches EPS.

Sustainable EPS growth only comes with big sales growth and for Apple, the iPhone has been central to this. iPhone sales in the Unites States and China make up the bulk of Apple’s revenue segments. Globally, the iPhone accounts for almost two-thirds of Apple revenues.

Many investors have minimum EPS growth numbers that they demand from any stock they invest in. A common number is 20 percent, but some might use 30 or 40 percent. Apple’s incredible stock run has been propelled by many quarters of 20 to 50 percent increases in its EPS driven by a succession of wildly successful products, including the iPod and the iPhone. Apple’s success with the products, particularly the iPhone, have enabled them to demonstrate remarkable pricing power with many iPhone 6s being sold for over $600 in 2015.

The mid-level, double-digit, year-over-year growth in iPhones sales Apple has been blessed with cannot continue forever. Business Insider has quoted Bank of America Merrill Lynch Analyst Wamsi Mohan, “The iPhone 6/6 plus represents a super cycle, in our opinion, demand is being pulled in from the next year, and we see the December quarter of 2014 as the peak shipment quarter for iPhones until the potential iPhone 7 release in Sep 2016.”

The iPhone 6 is so wildly popular that Mohan feels that consumers who otherwise may have waited until next year are leaping in right away, which might leave them in a position where they won’t purchase another until the release of the iPhone 7 in 2016.

Record iPhone Sales Make For Tough Comparisons in 2016

Currently, analysts polled by Thompson Financial Network are calling for Apple sales to grow 4.9 percent to $255.6 billion in 2016 and EPS to grow 7.1 percent to $9.78. On a net basis, these are impressive numbers. However, the growth leaves much to be desired. Without another wildly successful iPhone release or new product to replace the iPhone, something else is needed. Apple’s EPS and growth numbers forecast for 2016 simply do not whet the appetite of institutional investors; the ones with the buying power to keep AAPL shares moving higher.

Shares of Apple are down close to 15 percent from recent market highs seen before the company’s third quarter earnings announcement on July 21, which included the strong iPhone sales data.

[Photo by Jacopo Raule / Getty Images for Apple]