Why is Apple So Disconnected From Its Fundamentals?

I love Apple (AAPL). Many people express this sentiment but I love Apple for a completely different reason than most. It has simplified my investing life. Apple is my favorite stock because it always over shoots its fundamental support level. People get so excited and goofy about the stock that they give up when all reason for either gains or losses have been met and the stock just keeps going up or down.

From its high of 202 right after Christmas to it recent lows near the end of February below 120, the fundamentals of the stock did not change. So how does the stock go from 50 multiples of earnings to 27 multiples in less than 2 months? The answer is that Apple is not a company - it is a movement, almost a religion. People get into a crazed state when the tech community finds something it likes or does not like about Apple. The stock moves out of proportion to the news. Everybody is so attentive to Apple that it overshoots any reality check. Comments on Google Finance about how a 50 multiple of earnings is not too high to pay for this company show that financial reason has no place in the minds of the Apple investors.

So my advice is to wait for the momentum to really start going and then set the short. Let the tech geeks and their followers bring the stock to a very over bought level and watch it drop.

Disclosure: Author has a short position in AAPL

Comments

[sighPod:]

Disclosure: Author has a short position in AAPL. Enough said.

2008 Mar 31 02:32 AM

[freshsage:]

news.yahoo.com/s/nm/20...;_ylt=Al4jMAKfkhrTdSlm...

2008 Mar 31 06:52 AM

[jon_davi:]

I just bought a new iMac just two months ago. Since then, I've purchased a number of other Apple products, and I'm extremely pleased with all of them. So, YES, there is a "HALO" effect with all of Apple's products.

I'll never return to PC's and Mickeysoft's problematic OS's.

I will continue to look to Apple to provide me with my technology needs, just like every other person who has purchased their first Apple product and has been "converted" from the "darkside" of technology.

I'm also LONG Apple stock!

2008 Mar 31 07:16 AM

[macmatthews:]

I doubt very much that the average Apple fan is also a holder of company stock. Therefore the so-called 'crazed' behaviour of these 'tech geeks' is hardly what is moving the stock price. Rather it is the hysterical reaction of the analyst press to good or bad news that causes these wild swings.

2008 Mar 31 07:36 AM

[Rob L:]

Shorting will be painful for you right now. We broke over 130 just recently for the first time in the last month and a half. It's not going back to that level again unless the earnings miss in a few weeks or guidance is low, but based on history, that's not going to be the case.

2008 Mar 31 08:12 AM

[dig:]

pretty weak piece dude. apple is more volatile because the mainstream news & analysts have co-opted the role of what used to be the rumor sites. any news and speculation get amplified because the general public seems hungry for more bits to the apple story. as for appl's decline it's no worse off than a number of other highflyers. so what was your point here besides the flawed thinking that "tech geeks" are driving this stock price?

2008 Mar 31 09:03 AM

[Freedom Fig...:]

FYI: He almost always has a short position in AAPL. It is a matter of principle with him to make money everytime AAPL's yo-yo snaps back. He isn't trying to tank the stock, he is just trying to clue some of you in that this might be an okay company, but the frenzy its every press release creates is creating lots of opportunities for more level-headed investors to make small fortunes while the rest of you sit around waiting for it to introduce yet-another-overpriced... that will later be duplicated & improved upon by umpteen other companies & sold for 1/3 the price. THAT is the point when AAPL's stock LOSES 1/3+ of its value, leaving you, ONCE AGAIN, waiting for yet-another-neon-color... designed for teenagers. The doodad is duplicated, improved-upon & carried by people over 30, & suddenly becomes MUCH less hip. The cycle begins again. But, hey, you guys go ahead with your little love affair. The next time you lose your shorts, we'll still be here...holding them.

2008 Mar 31 10:17 AM

[foo:]

Sorry - who has been duplicating and improving upon the iPod and iPhone? Last I checked, they were still on top of their games. They blew away the competition when introduced, and have stayed on top because no competitors have the brains or gumption to improve on them.

2008 Mar 31 11:08 AM

[nikster:]

I'd recommend cutting that short position ASAP. I am long on AAPL. When it fell to 120, I bought more. Now the sale is over and we go back to court the 200s. It's certainly a feature of AAPL that it can drop 50% overnight with no good reason. But it's really hard to predict when that happens, so the best thing to do is take advantage and do some bargain shopping after the fact. Historically speaking, that is.

2008 Mar 31 12:21 PM

[jocca:]

I think the fall of Apple stock was due to two factors. The first one is due to the selling off of the stocks by a lot of large fund holders which needed to sell their winning holdings to cover their losses in the ailing financial market. the other reason is the fear of recession and Apple was clobbered as a consumer goods company, even though it reported stellar earning for the quarter. I suspect the coming quarter will not be too shabby either, despite the furious talk of recession.

2008 Mar 31 01:54 PM

[Brandon:]

"Comments on Google Finance about how a 50 multiple of earnings is not too high to pay for this company show that financial reason has no place in the minds of the Apple investors."

Anything in life is worth what people are willing to pay for it.

I think the PEG at 200 was 1.5.......that isn't that bad. If you're going to say Apple was grossly overpriced at 200 can you flesh out your argument a little bit more please. I mean, seriously, I don't know. But there are more metrics to look at than P/E ratio. You may be right, but please, do a little bit more research. If you need someone that's willing to put forth the effort, then I'll do it. All you have to do is pay me. :D

2008 Mar 31 06:59 PM

[Brandon:]

dig - "pretty weak piece dude. apple is more volatile because the mainstream news & analysts have co-opted the role of what used to be the rumor sites. any news and speculation get amplified because the general public seems hungry for more bits to the apple story. as for appl's decline it's no worse off than a number of other highflyers. so what was your point here besides the flawed thinking that "tech geeks" are driving this stock price?"

Maybe you should hire this guy too.

2008 Mar 31 07:01 PM

[Muzie:]

Geez, the comments pretty much confirm the content of the article. People always get so emo about AAPL.

2008 Mar 31 11:43 PM

[Freedom Fig...:]

Read HOW TO BE RICH by John Paul Getty. On his chapter on investing he investigates the causes of the 1962 market correction. In that chapter simmular comments like the one from Brandon "there are more metrics to look at than P/E ratio" abounded right before the correction. I agree that P/E ratio is but one factor but when it specifies 50 to 1 it means that even if the stock payed 100% dividends it would return 2% per year and not have any money to grow.

AAPL is not a religion and Steve Jobs is not a god (neither is Al Gore) so have some sense people or you will get caught in a bad position each time the stock corrects.

2008 Apr 01 05:04 AM

[martyg:]

perhaps the author should have provided the info as to what price he shorted the stock at and if he had a threshold of pain before he would consider covering.

2008 Apr 01 04:05 PM

[Yev:]

Freedom Fighter, the same concept that applies to longs, applies to shorts. The bear raid is over, the company has the same fundamentals as it had at 200, all indicators are bullish and unless they turn I wouldn't be short. When did the author get short? There is not enough detail in the article. Again you can apply the same concepts to shorts that you do to longs with the same article. Shorts scream Apple is done, longs scream Jobs is god, you gotta find for yourself when is a good time to buy and when is a good time to sell.

The bottom line is that the story with Apple hasn't changed, and until it does you can buy when its cheap, and sell when its expensive. Define those parameters for yourself. The same drivel has been around since 2003, the original iPod.

2008 Apr 01 05:48 PM

[Allen:]

I'm not exactly sure how you calculated a 50 P/E, but according to current estimates of $5.13 earnings for FY08, a $200 per share price would only be 34.8 P/E (minus the $21.50 per share in cash). That's being conservative considering their track record of beating estimates. Additionally, if you consider FY09 estimates of $6.27, their forward P/E is a mere 28.47. If Apple achieves $7.00 earnings in FY09, $200 would only be a 25.5 P/E. This doesn't even take into account the fact that they will continually be adding to their cash position through iPhone revenue sharing.

2008 Apr 01 11:10 PM

[Kunst:]

""Disclosure: Author has a short position in AAPL. Enough said.

Well duh! He told you what he thinks. Why wouldn't he be short?

If someone writes an article about how wonderful XYZ stock is, would you dismiss him because he's bought the stock?

2008 Apr 02 01:20 AM