Apr 22, 2013

Why is Apple stock doing so poorly?

Over the past six months, Apple's stock is down over $300 per share, and the total loss of market value adds up to about $290 billion. Yeah, billion with a "b". What's behind this? Apple hasn't suddenly imploded that I'm aware of, and they are still selling boat loads of iPads and iPhones. Is there some indication that Apple actually is in trouble?

The hedge funds and media love to play games with Apple's stock. The hedge funds make lots of money by running the stock up and down, and the media makes money by publishing stupid articles that say "apple is dooooooooomed!!!!"

Tune it out and focus on Apple's financial results reports. That's the best way to understand the true value of the company.

When you have a market that doesn't measure a companies performance over years, but rather breaks it down into 3 month increments, you often have irrational behavior by investors. There is nothing fundamentally different about Apple now than there was 6 months ago; they have huge cash reserves and post fantastic margins. The price to earning ratio of Apple is currently below 10, which is pretty much absurd. Frankly, there are a lot of lemmings in the stock market, and they follow whatever the talking heads "wise men" tell them. Remember Larry Kudlow's advice to buy Lehman stock, days before the company imploded? Oopsie.

But.....even though I think most of the hand wringing is short-sighted, Apple hasn't had a segment defining product since the iPad. Of course it's pretty hard to hit a home run every time you go to bat, but Apple has hit a lot of home runs over the past decade or so. For the past year or two, though, they've been hitting doubles. Good, but not as good. The iPhone no longer clearly sets the standard for smartphones, and there are competitive tablet alternatives to the iPad, generally at lower cost. At some point, Apple will need to do something beyond refining existing products and making them thinner and faster. 

The simple explanation is that the market decided Apple was overpriced. This was a common (though often disputed) sentiment for a couple of years or so before last September, when Apple shares began tumbling from their all-time high of 705.07 to less than 400.00 a share.

Given Apple's years-long growth in share price, couple with the death of founder Steve Jobs in 2011, and it's not surprising that Apple's stock has fallen in recent months. Keep an eye out for Apple's earnings after the market closes on Tuesday.
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