For HSBC, Apple competes with Louis Vuitton as well as Samsung

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

The question has been raised by analysts at HSBC Holdings led by Erwan 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 October 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 technology space and the company’s heavy reliance on iPhone products, the analysts said.

Nokia OYJ and BlackBerry’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 per cent 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 per cent upside over the next year.