If current projections regarding the Apple (NASDAQ:AAPL) watch actually pan out, it might not really do much good as far as Apple stock is concerned. You have to understand that Apple stock is pretty much priced to the limit. The company has to do something dramatic for it to justify further increases in its market valuation. This is going to be a problem because even if the Apple watch meets market expectations, and Apple does succeed in shipping 17.6 million units, assuming all these units are sold in 2015 and the average price for these watches comes in at around $350; this means that Apple would earn an additional revenue of $6.1 billion.
Normally, if Apple was a smaller company, this would be a big deal or something worth writing home about. The problem is Apple is no ordinary company. Apple is after all the world’s largest company in terms of valuation. $6.1 billion in revenue is nothing and really won’t add much to the bottom line of this company. If things go well, all this $6.1 billion expected revenue would just add 3% to Apple’s total revenues. This is a red flag for Apple shareholders.
You have to understand that Apple, for all intents and purposes, is strictly an iPhone company. Despite all the hype and buzz, Apple watch is just a niche device. It’s like a glorified version of the iPod. In terms of its contribution to Apple’s bottom line, it plays a minor role just like the iPod.
All told, the picture is quite bleak as far as further appreciation is concerned. Moreover, it puts a lot of pressure on Apple’s iPhone line to continuously break records or at least maintain its growth trajectory for Apple to maintain its market valuation. While there’s a lot to be excited about Apple, the peculiar problem it’s having with the Apple watch as far as revenue generation and profit contribution are concerned should make you think twice about buying Apple stock. It may not have much room left to grow unless it does something dramatic like the Apple car.