Was Apple's stock battering justified?

Was Apple's stock battering justified?

Summary: Apple's stock price took a hefty battering today after two analysts downgraded their rating of the stock. At close today AAPL stock stood at 105.26, down nearly 18% - the stock's lowest level since May 2007.

SHARE:
TOPICS: Banking, Apple
69

Apple's stock price took a hefty battering today after two analysts downgraded their rating of the stock. At close today AAPL stock stood at 105.26, down nearly 18% - the stock's lowest level since May 2007.

  • RBC Capital Markets analyst Mike Abramsky: He reduced his rating on Apple stock from "Outperform" to "Sector Perform."  his price target on the shares is now $140, down from $200. The reason: "a worsening consumer spending environment."
  • Morgan Stanley analyst Kathryn Huberty: She downgraded Apple from "Overweight" to "Equal-weight." Her target is now $115, down from $178. The reason: "PC unit growth is decelerating and the remaining source of growth is increasingly the sub-$1,000 market where AAPL does not play."

Lots more analysis available ... (Techmeme)

Piper Jaffray’s Gene Munster is more upbeat:

  • Consumer is slowing, but Street models reflect the slowdown. Our FY08 Mac unit growth estimate is 40%, going to 16% in FY09. We expect Mac growth of 29% this quarter.
  • We believe margin pressure concerns will prove to be overblown. The Street is modeling for 32% gross margin in FY09, down from 34% in FY08. We expect margin guidance to be 30-31% for December, in line or above the company’s 30% gross margin guidance for FY09.
  • A disappointing preannouncement for Sept. is unlikely. We do not believe Apple will preannounce a disappointing September quarter. Our analysis of two months of NPD data on Mac and iPod, which has a 0.90 correlation, suggests 5% upside to Street numbers.

[poll id=360]

I think that there's more at work here than Apple being affected by a weak economy. My bet is that Apple's figures for the September quarter will be in line with what Munster outlines. But Apple results have disappointed investors for several quarters now, despite announcing record numbers. Take last quarter as an example. It was a record quarter, yet the stock price dropped by 10%. For a while now it seems that investors have had unrealistic expectations for AAPL stock where even record quarters fail to impress. That kind of disconnect between reality and fantasy can only end with a significant readjustment of expectation - and we're now seeing that happen.

How Apple's stock price ends the year now hinges on Q4 08 earnings (10/20/2008) - good news and the price might just go up, but any bad news is likely to hammer the price to well below $100 a share.

Thoughts? Is Apple recession-proof?

Topics: Banking, Apple

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

69 comments
Log in or register to join the discussion
  • Apple, like RIMM...

    ...was horrendously overvalued.

    If you have a PE in excess of 35 you need exponential growth to sustain your share price. Apple's gains in market share, whilst seemingly impressive in terms of relative percentages, are too small to justify the price plus, as Munster mentions, rate of growth is slowing.

    So, yeah. It was justified although I think it'll settle back up around the 120-130 mark.
    Sleeper Service
    • "I think it'll settle back up around the 120-130 mark."

      Before or after the split? Considering Apple has managed
      to hold its stock prices at anywhere from 2x to 8x that of
      their competitors (HP currently the second highest
      desktop computer stock), I expect Apple will rocket back
      up to the $200+ range as soon as this depression eases.
      Vulpinemac
      • And that's the problem...

        ...Apple's sales are far less than HP's as is its market share. I appreciate the margins on its products are better but since sales of units are much less it doesn't add up.

        Apple's stock value went on a steep climb in 2007 based on the increase in Mac sales and the hype around the iPhone. I suspect that once that settles down the stock will maintain its position in the 120-130 range.

        You should also note that stock value - that is, price per share - means nothing in isolation.

        The vulnerability and volatility of the stock should tell you that it's not a steady banker.
        Sleeper Service
        • "The vulnerability and volatility of the stock..."

          Maybe you should look at those charts again. This time
          go back a little farther.

          Apple's stock [i]exceeded[/i] $200/share before the
          iPhone was released, then rose and exceeded $200
          again after the overall market slip in January.
          Comparing curve for curve and ignoring the 50% lower
          price, HP rose just as much prior to the January drop,
          and didn't recover proportionately after. The same is
          true of Dell (though this latest drop exceeds 40%
          compared to Apple's 20%) and Lenovo (whose numbers
          are down roughly 30% at the moment.)

          There was no [i]"... steep climb in 2007..."[/i] simply
          due to an increase in sales... that climb was already
          happening because of Apple's visible growth in the
          overall market. The volatility you describe is not just
          Apple's alone, but everyone's; and Apple is still
          showing higher numbers than any of its competitors.
          To me this shows that Apple is a far more stable choice
          than any of the others if you want growth.
          Vulpinemac
          • The iPhone was released on...

            ...29 June 2007. Apple briefly hit 200 in December 2007.

            I suggest you look at the graph. I'm not disputing Apple has reasonable growth, just that it doesn't merit the steep climb after the iPhone's release.

            http://finance.google.com/finance?q=NASDAQ:AAPL
            Sleeper Service
          • Then explain, if you will, Apple's steep growth...

            ... before the end of June, 2007. Explain, if you can,
            why Apple's stock has been consistently double that of
            HP and triple or higher that of any other computer
            company?

            The iPhone is not the only reason. The iPod is not the
            only reason. They are both part of the reason, I'll grant;
            but by no means the ONLY reason. If that were true,
            then why is Apple's computer growth consistently 6x
            that of the competition discounting the other
            hardware?

            Note that even now, by the same chart you linked to,
            Apple's numbers are already up over $6 from the close
            of selling yesterday, while everyone else is less than $1
            difference. Honestly, I'm glad I don't use you as my
            Market consultant. I'd have lost more money than I've
            gained following your logic.
            Vulpinemac
          • I'm glad you're not my market consultant.

            You seem to be completely clueless.

            [i]Note that even now, by the same chart you linked to, Apple's numbers are already up over $6 from the close of selling yesterday, while everyone else is less than $1 difference.[/i]

            DELL is up $.75/share right now. AAPL is up $6.89/share right now. On a [b]percentage[/b] basis DELL is up ~4.8% whereas AAPL is up ~6.6%. On a percentage basis AAPL isn't outperforming DELL nearly as much as a dollar basis would suggest. Since DELL only fell 9.3% yesterday compared to AAPLs 18% decline I think DELL is recovering better than AAPL today.
            ye
          • Time will tell, ye...

            I pointed out the exact same figures just below.
            Vulpinemac
          • @vulpine: What will time tell us? (nt)

            .
            ye
          • Look at the numbers, ye...

            Look at the stocks. Despite the big drop yesterday,
            Apple rose more than $8; 5x more than HP and 8x
            more than Dell.

            Look at the sales. HP and Dell each have shown only 5%
            growth in new market sales for the last 3 quarters
            while Apple, despite the depression that has been over
            our heads since January, is not only showing growth in
            excess of 30% but last month broke 10% in laptop
            market share and 9% in overall market share.

            Apple's not failing; no matter how much you want it to
            happen.
            Vulpinemac
          • I'd reply explaining why you're wrong...

            ...but I'm not a fan of banging my head against a brick wall.

            Incidentally, I was an Apple stockholder. Just thought I'd point that out.
            Sleeper Service
          • @vulpine: Where did I ever say Apple was failing?

            As an AAPL stock holder I have no desire to see Apple fail. Pointing out you are clueless with your comparisions does not mean I want Apple to fail.

            As for your numbers your mistake is comparing abolute dollars and not percentages. Thus making you look like a fool. Using percentages we find:

            - Mondays losses for Apple, HP, and DELL were 18%, 7%, and 9% respectively.

            - Tuesdays gains for Apple, HP, and DELL were 8%, 4%, and 7% respectively.

            - The amount each stock recoverd for Apple, HP, and DELL on Tuesday (wrt Mondays loss) was 37%, 52%, and 67% respectively.

            This means that AAPL share holders (such as myself) are down 63%, HPQ share holders are down 48%, and DELL share holders are down 33% since Fridays close.

            So in absolute dollar terms AAPL appears to have recovered better. Unfortunately absolute dollars is not the way to be performing the comparisons. You need to use percentages.
            ye
          • Then why, ye, do you keep ignoring...

            ... the overall fact that Apple's [i]growth[/i] has been so
            much higher over the last decade? For that matter,
            even for just the last year?

            Looking at percentage of day-to-day recovery, I
            acknowledge your statement. However, when looking
            at the actual dollar value of each, it is far easier to
            regain 50% of a $2 drop than it is to regain 50% of a
            $20 drop. When looking at the percentage of total price
            of the stock itself, that recovery doesn't look nearly as
            good, as indicated by the fact that Apple regained
            something like 8% of it's opening value while HP only
            regained 3.79%.

            You can make numbers say what you want them to
            when you control the parameters, but looking at real-
            world numbers, Dell's 50% recovery, while looking
            good on paper, means you would have had to invest an
            enormous amount to make any kind of significant
            profit.

            The concept of "Day Trading" has effectively been
            stopped. The market trick of short-selling (think of all
            those spam emails you got last year for an example) is
            banned. Market reporters and brokers have all
            recommended Long-term investments as the only real
            way to make money. Looking at the desktop computer
            industry, there's only one company anyone should buy
            based on that recommendation. It's not Dell.
            Vulpinemac
          • Error on my part. This response is to later comment

            Where did you learn your math?

            Please explain this to me. Why would I want to buy a
            stock that's not growing?
            Vulpinemac
          • @vulpine: I keep ignoring because it's not relevent...

            ...to the reason for my post. The reason I responded was to point out you were not making an accurate comparison when you were comparing the abolute stock price of AAPL versus HPQ becaues the number of shares outstanding were not the same. That's it. No where did I question Apple's growth. No where did I say Apple should fail. No where did I say AAPL was a bad investment. All I said was you weren't performing an accurate comparison for the point you were trying to make.
            ye
    • Apple, like RIMM

      I think Apple is solid. With the sea-change going on the markets, I don't think private investors are going to bid up stocks to the fantasy level for a long time (minimum 10 years).

      Stocks, so far, have not been hammered as badly as the bonds. Remember this crash is a debt-based crash. So bonds are going down much faster than stocks. Stocks that pay a good dividend, unlike Microsoft, are going to do better than the rest of the markets.

      Stocks paying good dividends that are tied to food, energy and health will do better, also.

      Cheers.

      -John
      johndecoville
  • I heard that US stock markets were totally messed up today.

    Is that true?
    Dealing
    • The crash is long over due

      You know they are in for a hard smash when these fools keep on consuming, consuming and consuming as if there's no limit in their borrowing power.
      LBiege
  • Not really

    They don't make nearly as much money on computers as they do on iPods, and the still own over 70% of the MP3-player market. Reports are that the MP3-player market is shrinking, but Apple has already moved into the market that will take over -- the phone market. I doubt they'll ever own 70% of the phone market, but if they sell as many iPhones as they did iPods, they'll make even *more* money because the iPhone is more profitable.

    I don't think any stock is recession proof, but this sell-off was not justified.
    bidemytime
  • Wall Street are a bunch of pigs

    Why are you asking if its justified. You should know better.

    There is no logic to Wall Street. Just GREED. Screw somebody and see if you can get their money too (by the way the short stocks and give false BUY ratings and .....)
    code_Warrior