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Why Apple Is Down From $700

|Includes: Apple Inc. (AAPL)

After a recent Stocktalk posted by Seeking Alpha founder David Jackson, I decided to put my thoughts down on paper and share my thinking related to Apple (NASDAQ:AAPL) on my Instablog.

I've been following AAPL closely for 10 years now. I started back in 2002 as I was intrigued by Steve Jobs presentations and ideas. In 2004 I took the plunge with my first Apple product (white iPod shuffle) and it was great.

Since that time I've been a quiet bull on AAPL and enjoyed watching the company grow and exceed everyone's expectations. So why is AAPL down recently?

For starters, if you look at the products released since SJ passed away you can see a change in the product development process. Obviously SJ didn't do everything from A to Z but he drove the company in the direction it needed to succeed. Tim Cook does not have the passion or brilliance to accomplish that. One of the first things SJ did upon his return to AAPL was eliminating the numerous product lines and focusing on fewer products that were all great. Since he's passed it seems like new product lines keep on coming out (MBP with retina, iPad mini etc.).

When the MBP with Retina came out I said to myself, SJ would never have approved of this. The product was overpriced, overcomplicated, and the only thing SJ probably would love is the fact that it did not have an optical drive. Then came the iPhone 5, which in my opinion was an abomination of the iPhone. They changed its form factor from what was the perfect shape and size, destroyed the user experience for legacy users, and released an inferior product. Yes it's flying off the shelves, but that's momentum which can't last in the face of an inferior product development process.

Now comes the mini-iPad and revised New New iPad. SJ said 7" tablets are dead on arrival back in 2010, and yet now they released one. Additionally, I've used the Nexus 7 and it's great. Yet now Apple comes out and says everyone missed the boat on the 7" tablet and we got it right. But that is incorrect, the Nexus 7 nails the 7" tablet UE and is only 199.

The argument against android is substantial, and justified. Different pieces of hardware, non optimized, creates a messy environment. But if you zoom in on the product Google endorses you will find a different experience. The Nexus 7 is truly an amazing user experience, Google is now partnering with Samsung on a 10" tablet that will blow iPad away in tech specs, and let's not forget a small entity called MMI that Google now owns that is working in the background on what is most likely a Nexus smartphone. Of course we can't ignore the Chromebook (Macbook air priced at 249!).

So why is AAPL down? For starters my belief is the current share price is based a forward looking expectation of continued YOY revenue growth of 50%. On the most simple of levels if that is not sustained the current share price is not justified. AAPL has a PE of around 14, that is on par with similar companies in its class, but the question in my mind is if PE remains at 14 but YOY growth is let's say 10%, what would AAPL trade at? I also think that people that follow AAPL objectively may be able to recognize the change in the company and may realize that while it's been a great run the stock price just can't keep on running up, and as such may be capturing profits now. By the way that isn't to take away from the fact that AAPL is still up 51% YTD.

As a sidenote (a BIG sidenote). Apple currently controls a major share of the tablet market but Google has Apple in its sights. Larry Page has been cutting back on a number Google products and focusing on making a few products great (sound familiar?) additionally they are focusing on optimizing hardware and software for each other (hmmmmm). Apple may like to believe the 7" tablet has been a failure until now, but that just isn't true. Google nailed it with the nexus 7, and they are developing their own ecosphere that is guaranteed to give Apple a run for its money.

My father always says you either predict a price or time, but never both. So I believe AAPL will probably get to around $500 per share before leveling out. At that level investors will evaluate the value of the company and see if that is its fair value. The main factor I'm watching closely is their YOY revenue growth. If it starts to slide, that would be reason enough to push the stock down. When that will happen only God and SJ know.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.