Apple's (AAPL) stock is on fire, and has seen significant upside in the last couple of months. The company's market cap has gained 44% from its November lows. If we adjusted for $100bn cash, the company's enterprise value has gained even more -- 64%. Many investors are asking if any easy short term money making opportunity is left in the stock. Here's why I don't think so.
Apple's share price surge was caused by two factors -- excellent last quarter results and ongoing speculation on Apple's dividend. I do agree that Apple's chances of paying dividend have increased, particularly after Disney's (DIS) CEO Bob Iger has joined the board. Disney has a good history of returning cash to the shareholders, and Bob Iger joining Apple's board is definitely a positive sign. However, it appears that some analysts have gone overboard, and I have seen a couple of sell side reports discussing scenarios where Apple can provide a dividend yield in line with S&P 500 (SPY). In my opinion, the only reasonable expectation is for Apple to offer a modest dividend, and I believe its stock has risen enough to price that in.
In terms of actual business, Apple's iPhone sales are expected to slow down going forward. There are two main reasons behind it:
- Apple's last quarter iPhone sales saw a pent up demand from customers who have been holding back their purchases in anticipation of the iPhone 4S launch. This caused a miss in Q4FY11 results and inflated Q1FY12 results. The pent up demand which company has seen in Q1FY12 is unlikely to repeat itself.
- I also see a similar scenario going forward, where customers hold back their purchases in anticipation of an iPhone 5 launch, causing a decline in iPhone4S sales.
The slowdown in iPhone sales is already apparent from Gartner's latest report. It is also not something completely unexpected. JP Morgan's analyst Mark Moskowitz has his iPhone units forecast at 28 mn for Q2FY12 versus 37 mn units Apple sold in Q1FY12. Bank of America's analyst Scott Craig has his iPhone units forecast at 29 mn for Q2FY12 and 27 mn for Q3FY12.
Given that iPhone accounts for ~50% of Apple's valuation, I am not sure how comfortable bulls will be in driving up shares of Apple in the near term, when iPhone sales are expected to decline at least for the next two quarters.
There are three major ecosystems in the smart phone space- Apple, Microsoft (MSFT) and Nokia (NOK) combined, and Google's (GOOG) Android ecosystem. Investors will surely be worried if Apple's iPhone loses share against the other two, even if it is just a temporary blip. Two quarters of share losses is enough to make at least some bulls nervous.