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Having digested more bad news and 4 days away from an FQ2 report expected to show an 18% Y/Y EPS...

Having digested more bad news and 4 days away from an FQ2 report expected to show an 18% Y/Y EPS drop, "investors are suspicious about the ‘E’" in Apple's (AAPL) P/E, notes fund manager Lawrence Creatura. But for now, Apple (AAPL) trades at just 5.6x FY13 EPS after backing out cash. Or as BI puts it, Apple needs only 6 years to produce enough cash to match its enterprise value, if it was simply produced at FY12's rate. The FQ2 report could include light guidance for an FQ3 that's about to see Samsung's Galaxy S IV go on sale, and could see iPhone/iPad buyers delay purchases ahead of refreshes. Is that enough to justify a valuation lower than Dell's?
Comments (38)
  • "Apple needs only 6 years to produce enough cash to match its enterprise value, if it was simply produced at FY12's rate."

     

    That is the issue. Can they continue to earn at the 2012 rate?
    20 Apr 2013, 10:23 AM Reply Like
  • Apple can only grow revenue.

     

    China, India, Indonesia and Brazil are underrepresented and clamoring for Apple products.

     

    Apple's brand is as powerful as Nike or BMW worldwide.

     

    Can anybody show me evidence that Apple's brand is slipping?
    20 Apr 2013, 06:39 PM Reply Like
  • That exactly the point. People seem to think that this company can grow forever at a rate similar to what it's doing now. I highly doubt it. Technology is littered with companies, that at their peak, could do no wrong when the opposite is true. I think AAPL goes a lot lower, as in $300 - $320 before the end of the year.

     

    Whether it goes up or down, I can care less, as long as I am on the right side of the trade. I've never seen a stock that commands such emotional arguments. As a trader, you've got to be flexible, and not rigid. I made more money trading AAPL from the long side last year than any other ticker symbol. Since the iPhone 5 launch, I don't think I've been more negative on any other stock in the market.
    20 Apr 2013, 10:01 PM Reply Like
  • 2 years ago people are bringing 3 to 5 iphones from the US back to asia every trip on business due to request of friends etc.
    today it has stopped.
    the iphone is still more expensive in asia then in the us
    Also Chinese tourist are still buying lots of designer purses etc when they travel oversea and none of those I know of buy an iPhone which is cheaper than any designer purse.
    21 Apr 2013, 10:33 AM Reply Like
  • logic is dead - figure it out by reading Why Accounting is not Boring.
    21 Apr 2013, 04:10 PM Reply Like
  • Lucky me I own Apple at 430....so far the cash hoard has been nothing
    but the Sirens for me....
    20 Apr 2013, 10:28 AM Reply Like
  • bbro
    Will you be averaging down or sitting on what you have? I am tempted at 390 but will wait until after earnings.
    20 Apr 2013, 10:36 AM Reply Like
  • That has been the question I have been asking myself since Thursday...probably going to sit with it...I generally don't like to average
    down... especially when it appears the SPY is probably going to have its 5 to 7% correction soon....
    20 Apr 2013, 10:55 AM Reply Like
  • I was tempted at $530 back in January but didn't. So, how did that work out for me?
    21 Apr 2013, 04:30 PM Reply Like
  • my dad always said "the market price is the price" when ibm crashed to the 20's ..... even though it made no sense. aapl is undervalued no matter if growth just stops.... it is a cash generating machine.... that said it could probably drop a bit on tuesday but i would think if they announce a divy increase to around 4.5% we will see a HUGE reversal.... no matter how many i-phones, i-pads, i-pods and macs were sold in the quarter.... might not buy in front of earnings but would not sell either
    20 Apr 2013, 10:43 AM Reply Like
  • The market seems to be expecting Apple to once again do nothing with its cash when it announces next week. After all, that's what they've done with it the last 2-3 years.

     

    If they finally do something with the cash, the stock could pop. If they have positive earnings or product news or guidance, the stock will fly. If they don't, maybe that lack of news is already baked into this $390 price?

     

    All in all, I think the bad news is baked in, and any good news will be treated as unexpected and deliver a pop. Hard to believe Apple will manage shareholder expectations any better this time than in the recent past, but at these levels the risk in the stock does seem to me to be toward the upside, not the downside.
    20 Apr 2013, 10:44 AM Reply Like
  • this wud then be a classical - sell the rumor, buy the fact - even if the numbers disappoint the stock will bounce. i tend to agree.
    the sellers really needed last Friday after the stock hit a low for the move of 385 to compress the stock, keeping it from closing at 400 , hence they sold the close to 390, it's all becoming a numbers game, has nothing to do with company performance or value, as long as Apple does not speak the Trade can do with the stock price whatever they want, but they are running out of time , Monday is last chance to make the stock look ugly.
    20 Apr 2013, 11:16 AM Reply Like
  • wiesje
    "has nothing to do with company performance or value,.............."

     

    You just described many stocks. Your comment is apt for many ridiculous multiples today like in Netflix, Amazon and others. Why even Verizon gets a 50+ multiple.
    20 Apr 2013, 12:08 PM Reply Like
  • Honestly, how are the NFLX and AMZN p/e justified... and how is Apple's P/E justified... Makes absolutely zero freaking sense.
    20 Apr 2013, 06:01 PM Reply Like
  • @ john4567 : is the analysts who have put the fear of God into the Apple stock, everybody is all over this share -
    Apple deserved to come off the highs from back in September, but the last 75 bucks on the down, below 450 is all down to the Street, after hyping the stock up to a 1000 $ last year, the are now paving the way to talk it down to 350 $, well we all know hat happened to the stock when these experts called Apple their hero, so you know what is going to happen as they are calling it now their zero.
    20 Apr 2013, 10:19 PM Reply Like
  • @ wyoistocks - agree - i looked at EBTIDA as a means to try and understand somewhat how companies are valued , rather than at pure p/e, bcse that's so ridiculous one can never justify buying some of these stocks and if you than look at the major tech stocks is quite shocking:

     

    - facebook 45
    - amzn 42
    - ebay 17
    - google 16
    - oracle 9
    - msft 8
    - BBRY 7
    - samsung 7
    - apple 6
    - dell 6
    - intel 5
    - hp 3

     

    if one purchase Apple today @ 390 is a mere 6 x EBITDA comparing to Apple's just under 60 bio it generated in 2012, as such Apple is put in the league of hardware companies such as Intel and hasbeens like Dell and BBRY, in that price is also included that huge amount of cash of 135 bio, sure Apple's margins of 25% is not sustainable and one must assume they will go down to 20% or maybe even 18% where Samsung is at, but just to compare against the "en-vogue" cool shares as FB and AMZN which are at 45 and 42 X EBITDA

     

    Apple's present share price @ 390 is indicating that the market is not expecting a reduction in Apple's numbers, but a total implosion
    of Apple's turnover and profits

     

    I mean to me that is just ridiculous, Apple trading below 400 is the over-kill on the stock price for what we know and see today.

     

    the analysts are killing the stock with their constant downgrades and negative spreading of sentiment, we are exactly today at 400 looking South as we were 8 months ago at 700 looking North - things simply don't work that way -

     

    long Apple and i did double-up on Friday
    21 Apr 2013, 03:00 AM Reply Like
  • "Or as BI puts it, Apple needs only 6 years to produce enough cash to match its enterprise value, if it was simply produced at FY12's rate."

     

    Yeah, and only 30 years at the FY09 rate; thus the whole point of the "E" discussion - what will it look like 3 years down the road?

     

    Here's a good comparison: what's Microsoft trading at ex-cash? About 7X FY12's rate (non-GAAP), not too far off from your AAPL metric.

     

    So here's a question for you - which is more sustainable, revenue/profits from Office (estimated market share at 95%+, with many enterprises locked into multi-year deals with MSFT), Server & Tools (similar dynamics as MBD), or the iPhone (with competition as far as the eye can see) and future/unknown products from Apple ex-Steve Jobs?

     

    This isn't to suggest AAPL isn't undervalued - just curious why we never see a similar blurb about MSFT on Seeking Alpha; should Microsoft's valuation be lower than Dell's?
    20 Apr 2013, 10:44 AM Reply Like
  • One thing Apple DOES having going for it is a fierce brand of customer loyalty that is largely unknown elsewhere. For years they sold MACs at higher prices than PC's but still had a loyal following and continually rising market share. Having owned an iphone myself now for several years (actually I'm on my 3rd and getting ready to replace it with another), I can't imagine switching to Samsung, even if I might prefer a slightly larger screen. Not going to happen. And by the way, I switched my 4 PC's to Apple along the way and can't see going back in that category either. Tablets? Even if Apple doesn't alway own the category, they will sell plenty. People forget there WAS no tablet category to speak of before the iPad. Everyone else who tried it, failed.

     

    Maybe Apple's future margins will come down, but maybe not, and maybe this will happen more slowly than the doomsday predictors think. Maybe they will manage to create yet another new category. (Who thought iphones or ipads would take off, after all?)

     

    The problem with Apple just now is not the lack of a future. There's no reason to think the future for Apple looks less bright today than it did before iphone or iPad. The problem is a lack of showmanship on the part of management, and a sense of arrogance and disregard for shareholder welfare. They have continually shown their disdain for the investing public and their own public shareholders, and lost the aura of invincibility that once attached to the company and the stock. Shame on management for that.
    20 Apr 2013, 04:32 PM Reply Like
  • Stan
    You bring up a point (or, at least I inferred it from your comments) which I comment about often; mainly, don't confuse the merits of Apple the company and it's products (which are quite good) with the market price of Apple's stock. Valuation of the stock and a critical review of the products Apple sells are two very different subjects. The former can be highly subjective while the latter is highly objective.
    20 Apr 2013, 04:48 PM Reply Like
  • @stan,

     

    are you sure or not? I believe Microsoft has better loyalty from its customers.

     

    No matter how many bad Windows(Me, Vista) Microsoft has had, its customers mostly still choose Windows.

     

    I won't use Office as an example, it is even better argument than Windows.
    21 Apr 2013, 01:07 AM Reply Like
  • I used Windows for many years but once I used APPL I will never get back to Windows. Those who still use Windows do not know what they are missing with APPL.
    21 Apr 2013, 01:54 AM Reply Like
  • @ transcripts: you are absolutely correct , MSFT as per my above included list falls into the same category of i would rather say, MSFT is the most " under-appreciated" of all stocks , much of that is by it's own fault, MSFT is also an absolute money machine, but it's been coming across as an uneventful, boring share to own, only good for pension funds and dividend collectors, but that's abt to change , MSFT may well be the best growth stock for the remainder of the year.
    i am counting on it.
    21 Apr 2013, 06:14 AM Reply Like
  • Yes, I'm sure.

     

    I was a microsoft customer for 10-15 years before I switched and found out how bad the Windows-based PC's were by comparison. Yuk! To think of the many wasted and frustrating hours I spent trying to get my PC to recognize my home or office wifi, trying to work through all those menus involving conflicting software... Who needs that? Apple products just find the wifi for you, end of story.

     

    Or what about software that freezes and makes you shut down your computer to reboot? Apple has a "force quit" feature that --- oh my god -- it really works.

     

    Anyone who has used a different product and switched to Apple thinks they died and went to heaven. This is true of iphone, too. It just works. I gather some Android phones have continuing issues with apps that just don't work, or don't work well. Not sure about Samsung but I can't see any reason to find out.

     

    So, bottom line, I think many Apple customers feel as I do, that Apple products are the gold standard. That may not translate into a high p/e multiple just now, but eventually the market will figure out it is worth something, and the stock price will return to a premium multiple vs. its peers.
    22 Apr 2013, 11:45 AM Reply Like
  • Shorting Apple has become the newest lemming trade. There is the telltale sign of the exactly same (more or less sensible) story offered as a rationale for selling no matter the valuation.
    20 Apr 2013, 10:44 AM Reply Like
  • Shorts have to pay the dividend on the shares the borrowed so an increase will hit them pretty hard if it happens.
    20 Apr 2013, 10:49 AM Reply Like
  • Why would anyone in the world take a position shorting Apple? Even if you don't think it's going anywhere, you'd have to be insane.
    20 Apr 2013, 10:51 AM Reply Like
  • Lemmings will be lemmings.
    20 Apr 2013, 11:01 AM Reply Like
  • It is quite interesting to read all the comments. I agree with all the ones that like APPL products. Yes, managements are busy working. I believe that they will come out with something that the stock will move up as before. Also, the analysts are doing whatever they can so the stock goes down so they can buy some more. We will see what happens next week, so lots of luck to all of us who invested on AAPL.
    21 Apr 2013, 02:12 AM Reply Like
  • In the pre-iPhone era dating back as far as 1992, Apple's operating margin was never higher than 18%; The average from 1992-2012 was 9.3%.

     

    In 2012, Apple's operating margin was 35%--the highest in Apple history--while Samsung's operating margin was 18% in their IT & mobile communications segment.

     

    The above facts might be why the market has little confidence in Apple's share price even with seemingly low valuation metrics.
    20 Apr 2013, 11:07 AM Reply Like
  • People have gone a little crazy here. At this valuation Apple is being like it will never grow again. It is very odd.

     

    There are two world economys at the moment - there is the Developed slow growth world and the underdeveloped fast growth world.

     

    The fear these thesis on Apple is..
    1. that they cannot produce a product at a price point that will be attractive in the fast growth world or if they do the margin will be so low that it will lead to massive erosion.
    2. in the slow growth world there products ar being undercut by just as good competitors. Also leading to massive erosion.

     

    All of this may be true but at the valuation - it is a a compelling bet. You get the huge installed base , the ecosystem and the brand - for basically nothing.

     

    Hard to resist.

     

    P
    20 Apr 2013, 02:31 PM Reply Like
  • Short term, some corporate finance item may have an effect on share price, but longer term it is silly to think such changes matter - they do not change the value of the company, just alter its appeal to differing groups of investors. The real issue has nothing to do with their cash, it has to do with their strategy.

     

    Apple keeps its plans close to the vest. Silence can easily be misinterpreted. Perhaps Apple will reveal its plans for the next year or two. If so, and if investors are satisfied with the plans, the stock could move. If not, or if they keep quiet, maybe it will move but not in a direction most would prefer.
    20 Apr 2013, 06:00 PM Reply Like
  • Management is hasn't done anything during the whole ordeal but that's not to say that they will not. The issue is drummed loud enough now that Average Joe thinks there's something wrong at Apple (hints: there's not any with Apple the company).

     

    The short interest recently shot to 1.28 days-to-cover. It historical average was 1 day. The last time it was this high was in mid-August 2012 (I can't remember anything happened then, other than the imminent release of the iPhone 5). So... shorties short on good news and bad.

     

    When (not if) management decides to act, and jack up the dividends or announce they have authorized a new buy back plan, there will be a jam at the exit. Of course, Apple *may* also beat the estimates, now that it's low enough. Apple has not missed their own guidance for several years. They know their business better than anyone else.
    20 Apr 2013, 08:06 PM Reply Like
  • bought at $505, then $452, then $430, then $405 and will buy a lot at $375. by fall, well back back above 500s. its a once in a generation company
    20 Apr 2013, 10:50 PM Reply Like
  • "once in a lifetime" opportunities are rare. Some will buy more shares of AAPL before they become expensive again. Some won't, some will sell some shares (why I can't imagine).
    I don't care what happens this year since I bought my shares to hold for years, but if Apple decides to increase the dividend and the share price falls I'm a happy guy. My pile of shares just grows a little faster that way.
    Nothing lasts forever but Apple's brand dominance and customer loyalty is not decreasing yet.
    The emerging markets are growing, the consumer class keeps growing worldwide and top brands never go out of style. Nike, BMW, Lious Vuitton, CocaCola, etc.
    It's frustrating that Apple is secretive but they really never let the stock tail wag the dog, they're actually pretty busy making excellent products and huge profits.
    21 Apr 2013, 12:38 AM Reply Like
  • Apple products are still the best whether it's PC, iPAD, iPhone or iPod. Once you use apple product it's not easy to transition to another brand. However, Apple management is so secretive not being candid to the share holders and sitting silently with tons of cash has back-fired substantially. Also the team must realize that they are no where near the charisma of Steve Jobs. He was a true genius and can come out something from his sleeve that surprised everybody. Let's wait till tuesday and see where it goes. Though, it's late for the management but it's never too late to realize the reality and pull the derailed train to the track.
    21 Apr 2013, 01:15 AM Reply Like
  • Ask yourself whether you think apple's next move is down another 50 points after Tuesday or up 50 points.
    21 Apr 2013, 04:10 PM Reply Like
  • As a day trader, I consider whether Apple will drop an additional 50 points after Tuesday or add 50 points. So far, I have generated huge gains on this stock, so I won't contemplate "shorting".
    21 Apr 2013, 04:10 PM Reply Like
  • Do people here really believe that they know something about Apple's future that isn't priced into the stock? This is the most over-owned, over-analyzed, over-obsessed stock in the world. With hundreds of sell-side and buy-side analysts gathering the most obscure information on Apple's operations, customers, and suppliers--there are no market inefficiencies to exploit. Everybody here is in reality speculating on the future of Apple with personal hunches. Apple's stock price reflects speculation on decades of future performance tied to whimsical consumer preferences in consumer gadgets.

     

    Good luck to the gamblers both long and short.
    21 Apr 2013, 09:44 PM Reply Like
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