Apple's (AAPL) stock is now down about 10% from its recent pre-iPhone high.
Suddenly, the Apple bulls have gone quiet.
Suddenly, you don't hear everyone agreeing that Apple's obviously going to $1,000 or on its way to becoming the first $1 trillion company anymore.
So, what's going on?
Why is the only stock that pretty much everyone agreed was a sure thing suddenly going weak in the knees?
A bunch of likely reasons (If I've missed any, please add yours in the comments):
- The last huge catalyst of this year — the iPhone 5 — is now ancient history, and investors no longer have any massive product announcements to look forward to. Early this year, investors were expecting three big product catalysts from Apple: the iPad 3, the iPhone 5, and the "iTV." The first two have been launched. The "iTV," meanwhile, has disappeared from everyone's radar screen. (Yes, the "iPad Mini" is coming, but that's viewed as a derivative version of the iPad.) If news begins to leak that Apple's going to roll out the iTV later this year or early next, investors might get excited again. Otherwise, it's buy-the-rumor, sell-the-news, and everyone's selling the news.
- The iPhone 5's initial sales were disappointing. The first weekend's sales number, 5 million, was significantly worse than the "worst case scenario" put forth by Wall Street's top Apple analyst. Whether the problem was flaccid demand or, more likely, supply problems, the number was well below expectations. And the disappointing launch sales likely mean that Apple will post lousy overall iPhone sales for the September quarter.
- Supply problems (and, possibly, demand problems) are creating concerns about iPhone sales in the December quarter. The consensus "whisper" estimate has been that Apple will sell more than 50 million iPhones in the December quarter. A month ago, most people regarded this estimate as conservative. Now, given ongoing reports of manufacturing and supply issues, as well as the percentage of would-be iPhone 5 buyers who are under contract with carriers and therefore can't upgrade yet, it would not be surprising if investors were beginning to worry that Apple won't hit the 50 million number for the December quarter.
- Longer-term, increasing competition, maturing markets, and pressure on Apple's extraordinary profit margin may become bigger concerns. Apple's competitors have now arguably caught up with the iPhone, or at least gotten close enough that the differences between brands are only important to tech snoots. Some of the biggest smartphone markets, meanwhile, including the US, have passed the halfway point in terms of penetration, which is the point at which growth usually starts to slow down. These factors and others could begin to put pressure on Apple's astounding profit margin. Companies can continue to grow profits when their margins are declining, and, ultimately, stock prices can follow this profit growth, but stocks don't generally go up when margins are dropping.
The good news for Apple investors is that the stock still isn't expensive — and never has been, despite the company's spectacular growth.
At $625, Apple is trading at 15X trailing earnings per share. That's about in line with the market's long-term average, and Apple is expected to grow much more quickly than the average company over the next few years.
Apple's stock, therefore, seems to be assuming that there will be some mixed news on the horizon. Not terrible news — if Apple hits real trouble, the stock could tank from here — but mixed news.
Also, if Apple makes bullish remarks about current iPhone sales when it reports its September quarter in a couple of weeks, investors could get jazzed again. Then the chatter will once again turn to how many iPhones Apple might sell in the December quarter, and the market could get all hot and bothered speculating about that.
For those who are worried about Apple's stock, a look at the stock's longer term performance certainly puts the recent decline in context.
The stock has more than doubled in the past year.
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