Can Apple Maintain Sales in the Current Economic Climate?

Apple (AAPL) is a popular company to discuss because its products are innovative, fun and the company makes a lot of money selling them. More importantly, though, Apple is a story stock with an iconic leader. This makes it an important company to watch from a Required Business Performance perspective because the stock price can be driven rather easily by optimism or fear. This became clear recently as the stock fell to relative lows on fears of Steve Jobs’ health alone. The opposite can be observed each time the company introduces new product enhancements, such as a new version of the iPhone.

Last month Apple reassured nervous investors with its first quarter results. It reported quarterly revenue of $10.1 billion, easily in excess of the $9.6 billion it reported a year earlier, and surpassed the expectations of most analysts. In this report, we learned that the company sold 22.7 million iPods during the quarter, which beat what most analysts expected.

The RBP investor, though, would have approached the question of an investment in Apple differently. (More info on RBP Investing) Without concern for how many iPods we expected Apple to sell, we would instead have asked how many must they sell given that the stock is at $78/share? The answer was in Apple’s Required Business Performance, which equated to $36.8 billion in revenue over the upcoming twelve months and breaks down in to iPod sales of 55 million. When Apple reported that it had sold 22.7 million in only the first quarter, this Required Business Performance was easily met.

So now let’s turn to the current market for Apple. The stock has risen sharply since the quarterly report and is currently trading around $90/share, however this is still much lower than its highs from 2008. What does this mean for iPod sales? At this price, Apple will need to sell only 48 million iPods in the next twelve months. Can it be done? Can the management of the company deliver this level of iPod sales?

It is worth remembering that in the previous twelve months Apple has sold quite a bit more than this: 55 million iPods. But we are in a questionable economic environment, and consumer spending is expected to continue to decline. So perhaps the bigger question is whether Apple is sufficiently resistant to economic slowdown to maintain sales of what is, essentially, a luxury product.