Apple Inc. (AAPL)’s Margin Worries Are Over (For Now)

These commonalities could lead to a repeat of 2011, when the iPhone 4S drove a strong increase in Apple Inc. (NASDAQ:AAPL)’s gross margin for the fall quarter. Gross margin is unlikely to return to the all-time highs it reached two years ago, but I expect it to expand to the low 40% range.

Keep playing the long game
I was not very surprised to see Apple Inc. (NASDAQ:AAPL) stock take a big hit following its iPhone announcement. Investors and analysts are overly focused on the revenue growth side of the value equation and were therefore hoping for a “cheap” iPhone.

However, margin expansion can be an equally potent driver of earnings growth. While I was surprised at just how high Apple Inc. (NASDAQ:AAPL) was willing to price the iPhone 5C, the company is much better off erring on the high side rather than pricing aggressively for market share and thereby undermining profitability. If Apple’s margins break back above 40% next quarter, this week’s hand-wringing over market share will be virtually irrelevant.

The article Apple’s Margin Worries Are Over (For Now) originally appeared on Fool.com and is written by Adam Levine-Weinberg.

Fool contributor Adam Levine-Weinberg owns shares of Apple and is long January 2015 $390 calls on Apple. The Motley Fool recommends and owns shares of Apple.

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