How working with Apple can make or break a stock, in two charts


Apple ($AAPL) is one of the biggest companies in the world. Based on market capitalization alone, the tech giant is the single-biggest publicly traded company on the planet. They make billions in revenue each year, post billions in profit, and perform well above the S&P market average.

Despite selling millions of products and making oil baron money, Apple doesn’t actually make a whole lot of anything. Instead, they contract the manufacturing of their products to other, smaller companies. Thanks to their massive size and large orders, working with Apple is often a dream for many companies. Getting such a lucrative contract means more money, more exposure, and a possible increase in their stock’s value.

Yet as good as it is for a business to win a contract with Apple, losing that contract is just as bad — if not worse. Though the Cupertino-based company constantly signs on and off with international suppliers, their relationship with two major partners recently came into the spotlight. One helped a troubled company possibly regain their footing. The other set a provider down the path of destruction.

The Case of Hertz.

StockTwits

Hertz ($HTZ) missed their earnings by a country mile in May of this year. This caused their stock to decrease rather rapidly, as many investors lost faith in the company’s ability to make money. Yet their stock increased by over 13% after the announcement that Hertz will work together with Apple on self-driving cars. Since Apple is more or less a money-making machine, this means that investors are excited about Hertz’s potential to make money with the tech giant. Hertz hasn’t made any actual money yet, but investors don’t care. They want to get in before the gettin’s good.

The Case of Imagination Technologies Group.

Apple
Google Finance

Imagination Technologies Group ($IMG) is a British company that makes semiconductors and other important components for mobile computing products. Apple happens to be their biggest customer, utilizing IMG’s technology in their iPhone and iPads. Yet in April, IMG announced that Apple will stop using the company’s tech in the next two years, relying instead on their in-house components.

Half of IMG’s revenue comes from Apple’s purchases and licensing. Now that Apple is slowly exiting the company, half of their sales will slowly disappear. This caused a massive sell-off of IMG stock, bringing it down 70% in a single day. Since IMG is without a major partner like Apple, they’re currently looking for a buyer to stay afloat.

Should you invest in these companies?

Hertz is nowhere near the S&P market average, and IMG is up for sale. Apple performs incredibly well on the market, though many investors believe this is based on speculated future sales and not current sales records.

If you think Hertz will spring back when Apple eventually releases their self-driving tech — whenever that may be — you could invest in the company to profit off of such gains. Just remember that Apple’s deal with Hertz has no impact on the company’s current revenue, and an unknown amount of weight on their future earnings.

If you think IMG will find a buyer and became more valuable in the process, you could always invest in them. There’s always the chance of IMG not finding a buyer and going bankrupt, rendering your investment worthless.

You could also just invest in Apple, a strategy many people favor. Sure, they’re at record highs now, but they could go even higher in the near future.

If you don’t want to speculate or if technology isn’t for you, simply invest elsewhere.


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