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Apple's Pricey New Phone Means It Looks a Lot Like Louis Vuitton

  • Risk of obsolecence weighs on iPhone maker’s valuation
  • Company’s retail penetration ‘can grow substantially’

As Apple Inc. prepares to start selling the $1,000 iPhone X, its most expensive smartphone yet, it seems reasonable to ask if it’s still a technology company vying with the likes of Samsung Electronics Co., or has become a luxury stock.

The question has been raised by analysts at HSBC Holdings Plc led byErwan Rambourg.

“Young Asian consumers willing to spend $1,000 on a gift or a treat for themselves could look to Apple’s latest gadget,” they wrote in an Oct. 31 note. “But alternatives could just as easily be a Louis Vuitton product, a trip, a stay in a luxury hotel, or a Michelin-star restaurant."

And his conclusion? Yes, Apple is a luxury stock as an alternative for consumers, but its valuation isn’t pricey.

Luxury stocks are currently trading at valuations much higher than Apple’s, and the bank said it’s hard to imagine sales growth will accelerate further for many companies in the sector. Apple’s lower valuation is due to the finite lifespans of market leaders in the tech space and the company’s heavy reliance on iPhone products, the analysts said.

Nokia OYJ and BlackBerry Ltd.’s hardware became obsolete over time, and Apple carries the same risk, according to the report.

Apple shares have been trading at an average 12.4 times estimated earnings over the past five years, a 24 percent discount to a measure of luxury stocks, according to data compiled by Bloomberg. HSBC, which has a buy rating on Apple, has a target price of $193, implying about 16 percent upside over the next year.

The analysts say Apple’s retail penetration can grow substantially -- and it has the people to help it expand: "Apple has poached talent from luxury companies, which can give it insights into premiumisation as well as mainland Chinese consumers, the key luxury consumers."

Chinese travelers account for 40 percent of luxury sales but only 22 percent of Apple’s sales, according to HSBC.

The analysts point out a further similarity between Apple and luxury companies: “Consumers don’t buy only the technology and the functionality but also the spirit of the brand, the way it makes them feel about themselves.”