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Overview:

The market is starting to lose its taste for Apple (NASDAQ:AAPL). A chillingly quiet clap received after its recent earnings release can be compared to the round of applause Google (NASDAQ:GOOG) retained after its earnings announcement. Even more chilling is Amazon (NASDAQ:AMZN) continuing to move higher despite the fact that it is insanely overvalued. Let's take a broad look at the profitability, share price and fundamentals of each of these companies to see if the market is pricing these companies irrationally or based upon the old adage "buy the rumor sell the news". Have Amazon and Google taken the helm? Did the popularity switch longer ago? Let's find out.

Share Price:


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As we can see from the above chart, Google's and Amazon's share price jumped mid-October as Apple's is shown to be moving downward towards the end of the chart. This is not the first time that Amazon and Google have outperformed Apple. Take a look below to see a much longer time frame. Google and Amazon have been outperforming Apple since the start of the year, not just recently. This may be the first factor leading us to the conclusion that Apple has become a value stock earlier in the year, not just in recent time. Google and Amazon have stolen the status of growth stocks. The other side of this take can be equally true that Apple has a lot of catching up to do on a PPS level that can provide substantial gains for investors.


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Earnings Releases:

Following their most recent earnings release we see shares of these three companies reacted differently.

  • Apple dropped 3.6%, although there was a 26% rally from the prior quarter's report. Revenue was up 4% year over year.
  • Google surpassed $1000 PPS following its quarterly earnings announcement - Up 12.8%. Google Sites' revenue was up 22% year over year.
  • Amazon went up 8% following their recent earnings release. Q3 revenue growth was up 24% compared to last year's quarter.

There is no doubt that Apple's shares do not react to the same excitement that the company's peers enjoy. A breakdown of each of the three company's earnings announcements reveals the following:

  • Apple beat on both the top and bottom line as the company reported sales of $37.5 billion and EPS of $8.26 versus analyst estimates of $36.8 billion in sales and profit of $7.92.
  • Google reported earnings per share of $10.47 per share on $14.98 billion in revenue versus analyst estimates of $10.34 per share and $14.80 billion in revenue.
  • Amazon reported EPS of $-0.09 and revenues of $17.09 billion versus analyst estimates of $-0.09 EPS and $16.76 billion in revenue.

In summary Apple was extremely close to Amazon's percentage revenue beat over analyst's expectations and both were above Google's. Apple also beat both on EPS over estimates by a nice margin. The market may be viewing Apple's growth as running out of steam and are in turn branding the company as a value stock. Or the company could be undervalued and the street has it wrong - but first we have to see if Apple fits the value stock criteria before jumping to any conclusions.

Company Apple Amazon Google
Revenue % over estimates 1.9% 1.97% 1.2%
EPS % over estimates 4.3% 0% 1.25%
Share price change -3.6% 8% 12%

Benjamin Graham's Value Stock Criteria:

To see whether or not Apple fits the criteria of a value stock, let's go through several points that Benjamin Graham used to decide whether or not a company can be considered a value stock. Also, we will compare the criteria to Amazon and Google to see if the data is subjective or not.

  1. A total debt to current assets ratio of less than 1.10 (using the balance sheet showing total liabilities/total current assets).
  2. Current ratio over 1.50 to make sure the company has enough assets on hand for any downturn.
  3. Positive EPS growth the past five years with no negative earnings.
  4. P/E ratio of 9.0 or less, lower P/E's eliminate high growth stocks.
  5. P/B ratio of less than 1.20.
  6. The company should be paying dividends.

(Bolded values meet or are the closest of the three companies to the criteria above):

Company Apple Google Amazon
Total Liabilities/Total Current Assets 1.00 0.365 1.28
Current Ratio 1.88 4.76 1.07
5 Year EPS growth Increasing YOY, except decrease from 2012 to 2013 Increasing YOY, except decrease from 2012 to 2013 Negative EPS for 2012
P/E 13.11 28.16 1,318.41
P/B 3.81 4.17 18.28
Paying Dividends (Yield) Started in 2012, 2.30% No No

Is Apple currently considered a value stock according to Benjamin Graham's basic criteria? I say absolutely not. The company's P/E and P/B ratio are too high and they also have the EPS decrease from 2012 to 2013. Apple may be moving towards a value stock status over the long term although currently the company does not fit the criteria as a value stock. Even more interesting is the overvalued Amazon. The company is massively overvalued and has a structural lack of profitability.

Keep in mind that Apple's cash and equivalents is at a stunning level of $146.8 billion (leading activist investor Carl Icahn to push for a $150 billion dollar stock buyback). Although this is currently not a success it can potentially be a win for investors. Apple could use the funds to buy back shares at lower prices in the future or to feed future growth rather than jump the gun now.

Target For Criticism:

Apple is the largest company in the world so they are a target for criticism. Samsung (OTC:SSNLF) and other competitors have had growth coupled with Apple's decline in Mac sales and margins. Google and Amazon are not without their problems. Amazon for one has a profitless business model and had negative income for 2012 and close to no income for 2013. I also wrote an article on how Amazon is facing stiff competition with the rollout of their new fulfillment centers from Wal-Mart who currently keeps that edge. Google has also been suffering from losses due to Motorola Mobility that are up 24% to $248 million. The example of Google may be small but the point is that Apple's competitors are not without their problems. Apple's recent launch of the iPhone 5S has been amazing, leading Apple to a quarterly sales record, while giving up close to $900 million dollars in deferred revenue -- this to make Mavericks and other Apple software free for the user. I am an owner and have recently written about the iPhone 5S and to put it simply, I love the device.

Trading:

Apple has been trading above the company's 50 and 200 day moving averages with an RSI at 71.08:


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Google has been trading above the company's 50 and 200 day moving averages with an RSI at 86.38:


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Amazon has been trading above the company's 50 and 200 day moving averages with an RSI at 82.09:


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Analysis and Conclusion

All three of the companies seem to be trading at higher than normal levels - above their respective 50 and 200 day moving averages. All three companies have RSI values over 70. This leads to the conclusion that shares may be overbought in all three companies. Apple has experienced what traders call the "golden cross" with a 50 day moving average that has gone above the 200 day moving average. This is typically a bullish signal. My analysis points me to believe that all three companies are overbought with Apple being the least overbought.

Art Cashin may be correct in his belief of a bubble in technology names although the three companies in this article are not mentioned in his viewpoint. Is Apple a value stock whereas Google and Amazon are growth stocks? I am not certain. Three things from this analysis remain clear:

  1. The market is not reacting with the same applause to Apple's earnings releases that Google and Amazon enjoy.
  2. Apple does not fit the criteria of a value stock under Benjamin Graham's criteria.
  3. All three stocks seem overbought yet Apple experienced the bullish golden cross.

The share price the market decides for each company can, at times, be irrational. This leads to amazing opportunities for the investor. If Apple falls below $480 I would begin accumulating. If Apple falls below $450 I would value the company a strong buy. At the latter price a new analysis may be needed if the reasons for getting to $450 are more company specific rather than a dip in the market or a tech sector correction. That would lead to a lower buying point.

Source: Market Irrationality Or Pricing Perfection: Apple, Google And Amazon