Apple Inc. (AAPL) Should (And Could) Do So Much Better

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Cheap iPhone? Tens of millions of people in China are waiting

A new low-end iPhone intended for emerging markets can drive Apple’s emerging market sales in countries like China. China is currently Apple’s second largest market after the United States, and if things are done properly can easily surpass the U.S to be the largest client. Most notable announcement from Apple Inc. (NASDAQ:AAPL) is support for Tencent Weibo, the addition of a Chinese-English dictionary, and improved Chinese-language input, which includes handwriting recognition for multiple Chinese characters.

Investors looking to play the Apple expansion to China should invest in China Mobile Ltd. (NYSE:CHL), the largest carrier in the world in terms of users with over 730 million, and the fastest growing carrier in China.  How big is China Mobile?  For starters they added 4 million users in April alone, and their entire user base is larger than the world’s second and third largest carriers combined.  Apple is losing ground in China to competitors like Samsung, so an agreement between Apple Inc. (NASDAQ:AAPL) and China Mobile Ltd. (NYSE:CHL) would be a match made in heaven. A mid-priced iPhone available to a price sensitive market (that can even be given out for free on a contract) is a huge win win for both sides.

So what can investors expect?

Simply speaking, there are three scenarios. A bull case where Apple fires on all cylinders, a base case where Apple hits on some notes, and finally a bear case where nothing goes right.

Bull case: Apple maintains its dominance in the tablet market, even as it establishes a new dominance in the lower priced smartphone segment with carrier expansions. In addition, Apple Inc. (NASDAQ:AAPL) launches differentiated services that target their half a billion strong user base to boost up revenues. I wouldn’t be surprised to see an EPS of $48 a share and trading at a 15 times multiple, which translates to a $670 share price.

Base case: Apple launches new products in the fall but new carriers, product categories, and services do not immediately materialize. EPS will still be a respectful ~$40 a share, and trading at a 14 times multiple will make today’s shares cheap compared to a hypothetical valuation of $560.

Bear case: Apple loses market share big time to their competitors across all fronts. Revenue is flat, shipments of new iPhone and iPad fall year over year. EPS can ring in at $35-$38 a share and a disappointing turn of events would justify a lower multiple valuation, perhaps 12, pricing the shares at a range of $420-$456.

Closing remarks

Apple Inc. (NASDAQ:AAPL) is the type of company that investors need to watch very closely. Any one of the catalysts I have mentioned above can bring a huge boost to the company’s shares and restore the confidence that was lost. I believe that the growth prospect for Apple is limitless – upgraded hardware, new products, new markets, new services can all be a reality that will make both shareholders, investors very happy.

Jayson Derrick has no position in any stocks mentioned. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple Inc. (NASDAQ:AAPL), China Mobile Ltd. (NYSE:CHL), and Facebook Inc (NASDAQ:FB).

The article Apple Should (And Could) Do So Much Better originally appeared on Fool.com.

Jayson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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