Buying Apple Stock on Apple Watch News Might Be a Bad Idea

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By Jacob Maslow

apple watchFor the longest time, one of the easiest ways to make money on the stock market was to wait for Apple (NASDAQ:AAPL) to announce a new product line. Whether it is the iPod, the iPad, or the iPhone, if you bought in the wake of the product announcement or right before news regarding a product upgrade, you are sure to get a nice lift in your stock’s value. Of course, there is some turbulence and there is some fluctuation. But on the whole, this strategy worked like clockwork.

A lot of investors are now trying to use the same strategy with the much anticipated launch of the Apple watch. They are thinking that if Apple is going to get a nice boost in its revenue from a new device, this is going to drive up the stock further and they would make quite a bit of money. In the past, this was a solid idea. However, given the economics of the Apple watch, this is a terrible idea. Why?

If the Apple watch was a tremendous success, at best, it would probably only deliver $6 billion to Apple’s bottom line. That is not even 5% of Apple’s total revenues per day. The reality is that Apple is still very much dependent on iPhone revenue. If anything happens to consumer perceptions, if tastes change and Apple couldn’t keep up, or if there is a fundamental technological shift in mobile communications, iPhone’s fortunes may head south. Apple’s stock is sure to follow. That is the reality.

Trying to use this old, tried and proven device announcement strategy to get in to Apple is ill-advised. It is not going to do much to improve Apple’s stock. However, there is a key caveat here. There might be a hype premium for the Apple watch rollout. However, if the numbers aren’t completely spectacular, expect that hype to evaporate pretty much overnight.

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