What's the future for AAPL?

I don't like writing about stocks and finance. This is a tech/home DIY blog, not a finance blog. 

But Apple has gone SO long without any keynotes - or really, any product releases whatsoever - that we're left without a lot to talk about.

And that, frankly, is the problem with AAPL as a stock. 

When Apple doesn't give us something to talk about - to get excited about - Apple looks less like a "way of life", and more like another widget factory. 

We've become so accustomed to the constant drip-drip-drip of information from Cupertino, and the  expected, controlled schedule of new iDevice product releases. 

And above all, a big Keynote presentation, with the CEO standing in front of white text on a blue-to-black gradient, every quarter at least. 

The keynote schedule has dried up. We last saw the Apple gang in October of 2012. It's now the end of April, and there has been nothing... and at the moment, nothing planned. 

That leaves the Apple community in a one-way conversation. And as nature abhors a vacuum, that  leads to all kinds of rumors... "iRings", "iWatches", and that perennial white whale, the Apple HDTV. 

Apple will, no doubt, release a new product at some point. Hopefully, it's iRadio sooner rather than later. But they can't go six months without a Keynote. It's bad for the brand. 

Since the last Keynote, we've seen some fantastic metrics from Apple's devices. Their iPad line continues to dominate the tablet market - despite some inroads on the low end from Samsung and Amazon - and the iPhone has made Apple the #1 cellphone maker in the world, and continues to gain on Android.

Also, since the last Keynote, the company has lost an astonishing amount of its market cap. While the current slide had already begun, at the last time Tim Cook was on stage a share of AAPL would have cost you in excess of $600 - and today, it's $390. 

There are some understandable reasons for the pullback in share price. AAPL was probably overvalued at $700. Some institutional investors reduced their positions in AAPL, because it's massive growth meant that AAPL was making up too much of their portfolio. Others started to get out in order to lock in profits, or because their computer algorithms mandated it when the stock fell a certain amount. 

What I'm getting at is - when your reason for selling a stock is solely because everyone else seems to be screaming SELL!, you're engaging in a circular argument.  

It could literally BE a circle - just picture 10 investors, standing in a circle, doing whatever the guy to their left does. And as everyone sells, the stock continues to drop, and the panic builds.  

But if AAPL was overvalued at $700, it's surely undervalued at $390. Apple's current price/earnings ratio is around 8.8 - which means that if Apple's growth went to zero and stayed there for the next decade, they'd earn enough money to pay off their shareholders in under 9 years. 

Even if you took away all of AAPL's assets, and had them stop selling products TODAY, the company has actual cash holdings of about $146 a share. 

To put that bluntly, when you buy a share of AAPL for $390, you're not just buying the right to Apple's future earnings... you're "buying" ownership of $146 in cash, too. The "equity" that you're buying is only $240! 

If you consider the current P/E ratio net of cash holdings, it's around 5.4 - and that's absurd. For that to be the "true" market price, we have to assume that Apple is headed for years of negative growth... and a fade into obscurity. 

This, from the #1 cellphone maker in the world. From the #1 music seller in the world. From a company that makes 45% of all PC profits

The last time Apple's P/E was this low, it was the fall of 2000, the company was coming off one of the worst decades in its history, and the stock was trading at $7. Bankruptcy was a real fear. 

Today, we're looking at a company trading at the same earnings multiplier. But it's a vastly different company. Today's AAPL just finished the most successful decade, arguably, in the history of modern capitalism. 

If the fear surrounding AAPL's stock comes from an assessment that their growth is limited because there are "no more worlds to conquer", it's understandable. I believe it's wrong, but it's understandable. 

However, if the fear surrounding AAPL's stock is rooted in "well, everyone else is selling" hysteria, then there are fortunes to be made for those bold enough to play the contrarian. 

And if there were ever a safe moment to be a contrarian in the equities markets, this is it. The contrarian position will be to buy the most successful and profitable tech company on the planet, a company with, literally, $137 BILLION in cash, at a 40% discount. 

Short term - I have no idea where AAPL is headed. 
Long term - I don't see how it can possibly continue to be priced as if it were a commodities maker. 


Post a Comment