Will Apple's gamble with new iPhones work?

Fears of Chinese economic troubles and slowing iPhone demand vaporized more than $100 billion of the company's value since mid-July, reducing its market capitalization to $630 billion, notes Robert Cyran.

Apple's iPhone upgrade should be enough to sustain investors as much as consumers. Boss Tim Cook is expected on Wednesday to unveil a new version of the company's popular smartphone.

If the product cycle pattern follows, it will elicit oohs and aahs but not necessarily puddles of drool. The spectacle, could, however, remind shareholders of one more thing: for a blue-chip stock, Apple trades at a big discount.

Amid the summer's market ructions, Apple has suffered badly.

Fears of Chinese economic troubles and slowing iPhone demand vaporized more than $100 billion of the company's value since mid-July, reducing its market capitalization to $630 billion.

The Middle Kingdom accounted for 26 percent of Apple's sales last quarter. And the company derives more than 60 percent of its revenue, and an even bigger slug of its profit, from the iPhone.

Cook will do his best to assuage competitive concerns when he takes the stage. History suggests it won't be easy. Apple typically unveils new models of phones one year, and improved "S" versions of existing models the next.

That puts it on track for an iPhone 6S. Close Apple followers are anticipating a phone with added ways to interact with the screen using hard taps, a faster processor, better camera and other goodies.

Such an incrementally redesigned device probably will be enough to convince some users to upgrade right away rather than wait for the iPhone 7. It's less likely many Android users will be persuaded to switch.

After Apple rolled out the slightly improved 5S in 2013, annual iPhone revenue growth slowed to less than 10 per cent. The introduction of the overhauled iPhone 6, by comparison, propelled sales by more than 50 per cent. 

The stock more than discounts these risks already, however. Apple trades at just over 12 times estimated 2015 earnings. The average S&P 500 company is valued at 19.5 times.

Put Apple on the same multiple, and it would be worth over $1 trillion. Moreover, while most big companies hold net debt, Apple's balance sheet is stockpiled with $150 billion in net cash.

If nothing else, it could close the yawning valuation gap by buying back its too-cheap shares itself.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)