Seeking Alpha
Profile| Send Message| ()  

By Romain Dillet

Yesterday, Apple (AAPL) shares fell 6.43 percent to $538.79, which represents a $34.8 billion market cap write-off. Analysts have been looking for reasons for the drop all day long without finding a single one that stands out. They forgot about the long-term perspective.

During the past 12 months, Apple shares have been up 42.7 percent, mostly due to two new products, the iPhone 5 and the iPad mini. With a new CEO and no new product in sight, volatility kicks in. The smallest downturn leads to a huge stock drop. Reporting about stock variations often means focusing on short-term activities.

Apple is no exception to this rule, and a few things can explain what happened today. Reuters blames an IDC tablet report and taxes on capital gain, Bloomberg blames China Mobile, Fortune even blames a DigiTimes article — an outlet known for its inaccurate reports.

The truth is closer to a combination of all of those reasons. Yet, there is nothing groundbreaking to report. So why is there such a downturn? It comes down to perception.

Investor behaviors are sometimes hard to explain, but in the case of a well-reported company such as Apple, it’s easy to find out. In strategy, VUCA (Volatility, Uncertainty, Complexity, Ambiguity) leads to greater changes.

Volatility

When it comes to trading, volatility has an actual meaning: a measure of the pace at which price changes occur. Over the month of November, Apple had an incredible volatility of 104 percent. The last time Apple’s volatility was that high was in May when many articles predicted that shares have reached their height and could only fall.

They were wrong. On September 19, the company hit an all-time high of 702.10 following a very strong summer. Since then, Apple shares have experienced some troubles, mostly due to the unveiling of the iPhone 5. Investors had anticipated the iPhone 5 in the stock price.

But volatility increased again after the iPad mini announcement, leading to huge ups and downs. Volatility is now a fact, but we need to find out why investors are buying and selling en masse.

Uncertainty

In 2012, Apple changed up its product-release cycle, either launching new products or revamping existing products in September and October. The iPhone 5 and the iPad mini are the two most important new products, but every category except the Mac Pro and the MacBook Air received an update: iPod, iMac, Mac mini and MacBook Pro.

For most of 2012, commentators had been discussing the specs of the iPhone 5 and the possibility of an iPad mini. All of that was good for the stock, and the constant stream of rumors reassured investors.

So the iPad mini is out. Now what? It’s hard to say what Apple’s next product will be, and especially Apple’s next breakthrough product. Steve Jobs passed away a little more than a year ago, and he still oversaw most of the products coming out today. Tim Cook isn’t the one who chose Intel for Mac computers, invented the iPod, iTunes, the iPhone and the iPad. Uncertainty leads to bigger stock movement — in other words, volatility.

Complexity

It’s hard to predict how much Apple is worth. Some say it’s an undervalued company, because it’s a premium company. Others can’t help but to predict its downfall. By trading a little under 10 times its earnings (excluding cash reserve), Apple is doing well, but not incredibly well. For example, Facebook has a P/E ratio much higher than Apple’s, and Microsoft’s is comparable to Apple’s.

Investors have to rely on earnings to know if the company is overvalued or not. Yet, analysts are now much more accurately predicting Apple’s earnings, leading to misses with profits of $8.2 billion for last quarter. Apple is the only company in the world to disappoint while raking in huge profits.

If analysts keep raising the bar, Apple will have a hard time reaching it. That’s why it doesn’t look good to investors. It is confusing and leads to uncertainty.

Ambiguity

Are Apple sales doing well or not? If stock trends, product updates, and earnings can’t indicate if the company is in good shape, maybe sales can help. As with other factors, perception gets in the way.

Samsung’s (OTC:SSNLF) brand is stronger than ever and it is now considered Apple’s biggest competitor. But only for smartphones. The Galaxy S III has been a big success, and even the weirdly shaped Galaxy Note II is selling well.

Yet, iPads represent an increasingly important part of Apple’s revenue. When it comes to tablets, Samsung is still a small player compared to Apple and has to prove that it can compete in the space. During the trial opposing Apple and Samsung, the Korean company revealed that it is selling roughly 20 times fewer tablets than Apple.

The commonly accepted conclusion that it is eating up Apple’s sales should be altered. iPhone sales are still growing and the iPad is still the dominant tablet. Behind an easy-to-understand opposition, there is a layer of complexity.

For all these behavior explanations, Apple stock moves are starker than they used to be. A few pieces of bad news can lead to a record downturn. Let’s not forget that it’s only a 15-day low. The news is that the biggest public company can experience two good weeks followed by its biggest loss of the year.

Original post

Source: Apple Drops 6.4% Due To Volatility And Uncertainty: The iPad Mini Is Out, Now What?