The stock market can often seem an irrational place, and never more so than where AAPL is concerned. The company keeps reporting record sales, has typically out-performed analyst expectations, takes home almost the entire smartphone industry’s profits and has so much cash it scarcely knows what to do with it – yet its share price is falling.
AAPL stock has fallen more than 14% since April, wiping $113B from the company’s market valuation. It dropped 7% in the past month alone. That’s the equivalent of McDonalds vanishing into thin air. What gives?
Bank of America Merrill Lynch today gave some insight into the thinking of investors when they sell the stock despite the company’s incredible financial performance. Downgrading the stock from Buy to Neutral, and lowering its target share price from $142 to $130, its analysts cited six reasons, reports Business Insider.
- They see a slowdown in revenue growth because iPhone sales are also slowing, and new products like Apple Watch and Apple Music are taking time to catch on.
- China now accounts for 25% of all iPhone sales, and it’s going to be hard to increase that share.
- The strong dollar will likely harm profits over the next few quarters, and profits are correlated to the stock price.
- Apple is not crushing earnings estimates like it used to, and so analysts may lower their expectations.
- The iPhone 6S and 6S+ (or what the upgrade to the iPhone 6 is oficially called), will include new features including force touch, but these won’t be enough to drive the stock meaningfully higher.
- The analysts don’t see incremental capital return announcements beyond those already announced for the near future.
There’s an additional technical reason behind the sell-off: the current AAPL stock price is lower than the 200-day moving average. What that means is that a share is worth less today than the average value over the past 200 days. This statistic is one that triggers some automatic selling, as it historically tends to suggest that the value is likely to continue to fall.
But as USA Today notes, Apple’s share price has done the same thing 17 times before, and always recovered. In fact, it typically recovers from this position in around a month.
The bottom-line is that investors have their own reality distortion field. They look not at the long-term prospects of the company, but at likely short-term fluctuations; at standard measures which don’t apply to Apple; and at the gap between short-term expectation and reality – even when those expectations were driven by the very same analysts concerned that Apple failed to hit them.
None of which is to say that Apple’s future success is assured. The Apple Watch will, I think, prove a slow-burn. Apple Music has met with very mixed reviews. The company is dependent on a very small number of products, with just one of them – the iPhone – responsible for the vast bulk of its profits.
There are risks to this – among them the fact that traditional smartphone contracts made annual or biennial upgrades appear ‘free.’ With contracts increasingly moving toward a model where smartphone financing is separated from usage tariffs, there’s the risk that people may decide to hold onto their existing models for an extra year or so. That could have huge implications.
But while Apple introduces new product lines rarely, its financial strength makes it better placed than any tech company in the world to do what it has always done: observe trends, figure out how to do the same thing better than everyone else and then proceed to make more money than any other company. That’s the long-term trend I see.
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Was wondering when Stock was going to get an article considering its been pretty big national news for several days…guess finding a way to blame investors was approved as an acceptable spin to appease the comment section.
‘Acceptable spin’ isn’t really my thing … When you read my view, you get them as they are, popular or no.
I’d blame them. Wall Street and investors never get Apple.
Er, because the market is full of irrational fools. Didn’t 2008 teach anyone ANYTHING?
The problem with smart phones is they will go by the way of PC s. There is a certain point that they are fast and smart enough that they don’t need replace every year or two.
Apple needs new innovation and a watch that most people don’t wear and don’t want is not going to do it.
Yawn. How many years now have we heard this? Two years ago Apple was doomed because the higher end smartphone market was supposedly saturated. And yet right now Apple is selling more iPhones than ever. And of course whenever we hear rumors of new stuff in the pipeline another set of nervous nellies come out of the woodwork worried that Apple is spread to thin and they need to focus on fixing the problems with their existing stuff.
They always get nervous in the summer, last year the hype was around the 6/6+, but how much percentage increase is the next refresh going to be? Will it be bigger, as big or not as big? They would rather be cautious in their predictions for the next few quarters than overly confident.
Agreed, the smart phone is going the way of the PC. The PC industry is continuing to decline but Mac sales continue to rise. Sales may slow in the rest of the industry but users will start looking for value in a device with services, usability, and reliability which will have them move towards devices like the iPhone and Vanilla Android devices (Nexus, to some degree Motorola).
It’s the typical panic about Apple cycle. We go through these cycles where Wall Street panics about iPhone sales and the product pipeline. And then other clowns chime in and say when someone else builds a better mousetrap Apple is finished. Then a few months later they’ll all be pumping the stock and company again. Rinse and repeat often.
If you have actually been following this story before today, you would know Apples Stock price right now has a much larger affect and reach than just for Apple. It threatens the market as a whole right now. This story is actually an important one at the moment.
I know Drudge said that as it’s good click bait. The stock is over $2.40 as I type this. Perhaps a short lived panic?
Because iCloud has too many bugs! Lol
Call it a conspiracy theory, but I believe AAPL may be a victim of stock manipulation. I recall someone boasting that the stock price would drop to a specific value on a specific day. It did exactly that. 80% of the news stories related to Apple stock are either linkbait, or contain false information.
We are clearly on the “short and distort” portion of the cycle for AAPL. The analysts’ market manipulation scam will continue shortly with the “pump and dump” portion of the show. Then we all rinse and repeat. They make money on both sides. I think that means we are all supposed to be happy and ignore what they do.
“McDonalds” and “thin”. Two words not regularly seen in the same sentence. Great writing, that was a good one!!
“AAPL may be a victim of stock manipulation” … I am sure that some of this is going on. If I remember correctly (and it’s possible I don’t) your “specific value” comment refers to the closing price at the end of the options period in 2012. there were many, many options written at $500 and – surprise, surprise – it was exactly $500 at the close. Down from pennies over $700 in mid-September.
Probably a bit more simple that you explain. It’s not really all that irrational.
Price is a multiple of earnings. The multiple itself is higher if the expected growth of earnings is higher. Simple logic is pay more today for a stream of earnings in the future if the stream is growing faster; pay less if the growth rate is slower. Logical.
What the market is dealing with is that they see the growth rate of earnings slowing down. Reason 1 is that Apple is so dang large that it is hard to grow earnings on a percentage basis. Reason 2 is that product growth rates are in fact slowing. Hope was that China would keep the growth rate up and that new product like the iWatch would add another growth stream. As those hopes dim, and they seem to be dimming, the PE falls and stock price falls.
Actually rather logical. If the news was better the stock price would be better.
Investors had bid the stock up thinking the forward news would be better than it proven to be.
Apple needs some more break out products to keep the growth rate up and honestly it’s not clear it has them. It doesn’t really matter that this quarter grew a lot, it matter what investors think the growth rate moving forward is. The projected mid term growth rate I google seems to be about 10-14%. That implies a PE ratio of 15-18. Stock seems to on the low end of that, particularly if you take a PE of 2015 earnings rather than 2014 earnings but you get the idea.
Investors look irrational when they expect one thing and they gets their hopes dashed (or hopes realized!). Sometimes I expect a restaurant or movie to be good and it’s not. That does not make me irrational. Just disappointed with an actual outcome vs an anticipated outcome.
Ok my wife does think I can be irrational but that’s not the point here…
That’s the problem- they are always worried about growth rate of earnings. I think that’s a worthless metric anyway, and pretty irrational. The phrase “It needs more break out products” is an irrational statement. A company can only have so many breakout products, and that’s ignoring the fact that they just released an amazing watch.
As long as the company is making money and doing well- both incredibly true for Apple- that’s all the matters.
Because people who invest in Apple stock sell it when it’s high. The selling causes the price to fall. When the price bottoms, the people who sold it high buy it low. Stock prices rise again. It’s really not that hard to figure out folks.
I would suggest drawing a distinction between investors who do consider the long term prospects of a company and traders who behave as outlined above. Even though this trading is difficult to do and exceed the market return, if you are paid a fee to manage money and outperform your index you need to try and do something to justify your fee.
When you add momentum traders and high frequency traders who often short a stock this shorting actually drives the price down and then when they cover the short the price goes up. The most pathetic group are the analysts who create these unrealistic expectations and then react to the failure of their own projections. They have no special insight into the dynamics of the Chinese market and it’s effect on Apple sales, they just guess like the rest of us.
The stock has a year over year return of 24.46% so who is really right about Apple. I’d stick with Tim Cook.
“The most pathetic group are the analysts who create these unrealistic expectations and then react to the failure of their own projections.”
Great sentence. True enough and well written.
This is the only reply that shows an understanding of the basic principles of trading and precisely what moves Apple stock on a daily basis. All the bullshit about earnings and future prospects don’t apply to Apple – that news is misreported and manipulated, but more importantly, the fundamentals, the actual performance of the company are all ignored wholesale when it comes to stock performance. There is little to no correlation of traditional fundamentals to Apple’s stock price. It is a poster child for defying logic.
But like the period following all quarterly announcements, the price is down after a sell off. And further down due to manipulation by the big brokers of the media to enable them to buy back at an even lower price point.
Someone who has more faith in the future of Microsoft, Amazon, Google or Facebook than Apple has their head up their ass. And if anyone has any money with Merrill Lynch, get it out fast, those clowns clearly don’t have you in mind when releasing such obvious BS as quoted above in this story. I don’t know what’s worse, the prospect of the information being disingenuous or that they may actually believe it.
This is still not shaking my position on my Apple stock. It’s cyclical and the “Analysts” don’t do enough research – IMO – and they are too far removed from the “emotional” value that I have,
That’s why they are analysts and I’m an investor! YMMV
The market has devolved into a casino where people focus on short term profits rather than the long term investments that the market was originally intended to generate. Just because todays computers can turn a buy / sell trade in under 300 milliseconds, doesn’t mean it should be allowed. The biggest misnomer in business is using the term “Investors” for the people trading on the stock market. We should call them “Gamblers” and tax their winnings as such. It also might not be a bad idea to hand out Gamblers Anonymous pamphlets on the trading floor either. I’m sure the addiction is ruining many lives on and off Wall Street.
I think I’ll take all my money and go buy CHTR stock (kidding), it is headed up again, after reporting blow out losses on top of more blow out losses. CHTR has no P/E because it has never had any earnings, it pays zero dividends and is a debt inflated ballon, it has also gone bust twice in just 15 years. Is cable really going to pay off for these investors? The stock price is rising because they didn’t lose as many $’s as last quarter. Compare AAPL to CHTR, and you may question the intelligence of many US investors. If someone will explain the CHTR phenomena to me I would real appreciate it.
Simple reason: press manipulation.
7
All I see is good news about Google and MSFT, and bad news about Apple.
Well, Apple has grown 33%, which is way more than Google’s “fantastical” 17% and Microsoft’s decline: -5%
Apple has grown more than 100% in China.
Apple sells the most expensive phones, at more than 3X the ASP of Android, so in most markets, they are the market leader in revenue, even if they aren’t in units, which mean nothing at all, because they all sell more Apps, accessories, services, etc…
The Apple Watch may have overthrown Android Wear in one (1) day. And be the product that one can only dream for Android OEM’s, but it’s labeled by the press as a failure, despite being the best product, hands down.
The presstitutes continue insisting that Apple is one trick pony, but the iPhone is “only” 70%, compared to Google, where 99% is from Ad’s? Compared to Microsoft, where most divisions lose money for years?
And so on…
IMHO, it’s simple, since iOS 9.0, everyone in the media hates what Apple has done: content (ad) blockers and Apple News.
So, they can keep their anti-Apple thing, while everyone who reads tech news will be installing ad-blockers, rendering them with no source of income basically.
OK, let me get this straight: Facebook is trading at 93x earnings; Google is trading at 30x earnings; Facebook, Twitter, and Amazon have large market caps despite having no earnings – and questionable prospects for EVER having earnings; and Microsoft, that tired company, is trading at 32x earnings. Then you have Apple, a company that has a strong reputation for some of the highest quality, least problematic, and most durable products in its category, and which has continually innovated, and while not always successful with innovations has had a far better track record than just about any other major company.
Apple has a 41% return on equity vs. Microsoft’s 14%; Apple has a 22% net margin vs. Microsoft’s 13%; Microsoft’s past nine year growth rate has been roughly 25% of Apple’s. Yet, Apple is only trading at about 13x Earnings and pundits are saying it’s going lower? This is a bit nutty to me. Apple is trading for multiples so much lower than other tech companies that are inferior in a variety of ways. Might there be some bumps in the road? Might performance going forward not be quite as good as in the past? Sure, but it’s beating the crap out of other companies, so what does it matter if it doesn’t perform quite as high it has in the past?
This is like buying a 2-year old Bentley that was acquired for $200,000 that has an upcoming oil change and may need new tires and brakes, but getting it for a price of $75,000. Buffett suggests being greedy when the market is fearful, and fearful when the market is greedy. The market is irrationally fearful of Apple right now. Great time to buy.
An institution / trader had a massive long option bet with Apple and took a ~$176 million hit. This position was $2.2 billion in underlying. Someone had a very bad month.
Anyone who doubts Apple’s health should look in the Apple Stores. Every year more crowded and always busy, with a huge percentage of visitors buying stuff.