How does Apple keep bucking the price trend?

The iPhones now regularly cross the $1000 barrier, and there seems no chance of the trend changing direction. CNN, using Apple’s data, has found that iPhone sales have dropped back from their peak in 2016:

Apple has found its place as a luxury brand, and seems content to let others dominate the cheaper end of the market. And this is no bad thing. From a valuation perspective, it is now more expensive on a forward price-earnings (PE) basis than at any time since 2010. Its forward PE of 16.6 is now comfortably above its five-year average of 13.2.

But as a luxury firm, Apple’s valuation would not be undemanding from a comparative perspective. The S&P Luxury Index has a forward PE of 17, so Apple would fit comfortably within that. This reduces the potential for nasty surprises.

Of course, it is possible that the decline in sales will outpace the increase in price of new models. In which case, Apple is in trouble. And admittedly it has to deal with a demanding valuation, so the risk of disappointment will increase. Investors can hardly argue with the momentum and fundamentals shown by the shares, but chasing them at all-time highs may not be the best strategy.

On average, September sees some weakness for Apple shares. Over the past 20 years, September is in fact the weakest month of the year, down 1.3%. But that is followed by an average 7% gain in October, 3.1% in November and 0.4% in December. The seasonality chart, to all intents and purposes, is a straight line:

Apple stock saw a significant retracement in June, but this latest sell-off merely provided the excuse for new longs to pile in. At present, the stock has struggled around $220, but any major pullback will simply fall into the ‘buying opportunity’ category until we see a move below $175 in the near term.