“Apple’s gross margin peaked at over 47% in the first half of 2012,” David Zanoni writes for Seeking Alpha. “Later that year, the stock price peaked at around $700 before dropping to around $400 last year. The stock has since recovered to the $590s. The fears surrounding Apple’s stock back in 2012 were about shrinking gross margin due to competitive pressure from Samsung and others that would cause Apple’s sales prices to drop, thus squeezing margins. Although the gross margin dropped to about 37% last year, it has recovered to about 39%.”
“The gross margin is important for the stock since it has a significant impact on earnings, which influences the stock price. Earnings growth can be determined by adding the percentage change in revenue growth to the percentage change in gross margin,” Zanoni writes. “Looking at 2014, Apple is expected to grow revenue at about 6%. The gross margin is expected to rise by about 5% for expected earnings growth of approximately 11%. This is much less than the average earnings growth that the stock experienced for the past five years. However, it reflects the maturity of the business as Apple’s newest and best-selling products have been on the market for a number of years”
“The good news for Apple is that the gross margin has been increasing since about mid-2013, after bottoming at about 37%,” Zanoni writes. “The current gross margin is about 39.3%. These increases will contribute to earnings growth along with the company’s revenue growth.”
Read more in the full article here.