Wednesday, January 23, 2013

Apple postscript

In my post last week "Apple sure looks cheap" I argued that, at $486, lots of bad news was being priced into AAPL stock. With the stock now trading at less than $460 in after-hours trading in response to Apple's fourth-quarter earnings announcement, it looks like I was under-estimating the potential for a negative surprise.

Here's what the chart now looks like, including today's plunge of almost 11%. In the great scheme of things, the recent selloff still ranks as a minor disappointment.

In any event, I have to believe that today's after-market crash will come to be seen as an over-reaction in the fullness of time. Most companies would be thrilled to report record quarterly revenue, record quarterly net profit, a 29% gain in iPhone sales compared to last year's quarter, a 49% surge in sales of iPads compared to the year-ago quarter, and triple-digit growth in China. iPad sales would have been even stronger, but they couldn't make them fast enough. Evidently, however, expectations were inflated.

Does this mean that Apple's earnings are doomed to decline going forward? I have a hard time believing that. At the current trailing PE of 10.4, AAPL is very cheap for a stock that can post such an impressive list of accomplishments. There is every reason to believe that earnings growth will continue to be positive (as production catches up to demand and new markets continue to post growth), and new product releases will be well-received.

Full disclosure: I am still long AAPL at the time of this writing.


Public Library said...

If you get rid of the log-scaling + incorporate the afterhours price it sure looks like the stock is getting closer to a floor of sorts. I think the story while wonderful will become reminiscent of MSFT. Jobs was great at taking risk and failing fast. Very difficult to replace that type of spirit and drive.

Scott Grannis said...

The problem with MSFT is that it was never able to create anything new and revolutionary after MS-DOS. No ability to innovate. The stock has gone nowhere for 10 years. And did I mention that MSFT's PE is almost 15 when AAPL's is 10? Makes no sense.

Rob said...

Subtract the $137bn in cash and yopu get a market cap neari enough $300bn ... for earnings of, what, $50bn ?!!

Anonymous said...

A look at the Apple chart zoomed to about 5 or 10 years looks pretty toppy to me. You've got the parabolic run-up early last year to form a left shoulder, another subsequent high in the fall which could easily be a head, now all we need is the right shoulder. It's got warning signs if you ask me.

Tiho said...

They say that "bull markets climb a wall of worry" and as is witnessed in this post "bear markets slide on a slope of hope". There is some serious "hoping" going on in this post.

Full disclosure: I shorted Apple several times between $675 and $700 between late August and late September.

Jean-Pierre Deslandes said...

Scott, Apple is one or the rare subjects where I disagree with you.

Sure it's a wonderful company which sells marvelous products. But its current position is simply untenable

It's dominance of recent years came in large part from its capacity to integrate its various products together.

For a while the competition was left behind, obviously it took more time for competitors to have their stuff working together (such things as beaming content from tablet to TV). But now it's happening and fast. In the long run and in such a competitive and volatile market there is no way one company can dominate the market.

I love Apple but I stay away from Apple shares.

As for MSTF I believe your are wrong also. They do the same as all the other, including Apple, with much success they take existing innovations and make them better. (For example their .NET software dev. environment is simply the best). Don't bet against MSFT for it is also a wonderful company, yet it comes with a better price and more robust competitive advantage than Apple

William said...

I added to my APPL 225 shares position this am at $460. With $144 / share in cash equivalents, the net price is about $317 for a P/E ration of 7.3 .

I have no idea where the price will be 6 or 12 months from now but I believe higher than $460. In the meantime I will collect the 2.25% dividend which surely shall rise nicely over the years.

Jeff said...

Scott...come on. "The problem with MSFT is that it was never able to create anything new and revolutionary after MS-DOS"

What about Windows, XP, and 7? They control 92% of the computers in the world.

What about Office? 75% of the market.

What about XBOX? 60% market share.

Internet Explorer? 30%

Not to mention the business side including MS Server, DB, Cloud, Exchange, eCommerce, etc.

Look, MS hasn't done much since Office 2003 (which was great). After that they haven't done anything except screw up the user interface with ribbons all the while AAPL was coming out with iPods, iTunes, and iPhones. I agree.

I also would agree the 8 is terrible. The average user is just lost. I've read a rework is already in process making all the tiles optional.

But MS is still a dominant force in tech. I bet WAMF paid them a pretty penny while you were there.

BTW, I think Bing is about to surpass Yahoo as the 2nd most used search engine. (I use it over google...much better...less manipulation).

NormanB said...

Silly boy. Using various AAPL analogies to what March quarter should be, Cook's $42B is 10% less and means that Y-Y will come in at a measley 8% and the trend is down. Further, AAPL hides money overseas and doesn't pay taxes on it. Thus when comparing their P/E tp the markets an haircut is in order as is their outlandish (even for them) profit margins which are sure to come down. All in all, its a $250-$330 stock assuming revenues don't go significantly negative later in the year which is surely possible. The Party is over.

bt1138 said...

And besides, Microsoft didn't create DOS. They bought it from another company and then sold it to IBM.