Wall Street prices Apple for no growth

“Apple (AAPL) shareholders probably aren’t too happy with how the stock has performed over the past few months. After hitting an all time high of just over $700 per share in September it began a downward descent which continues today, most recently trading at $528.38, a decline of about 25%,” Bargain Bin Investing writes via Seeking Alpha.

MacDailyNews Note: AAPL is currently down another 4.39%, off $23.26, to $506.43.

“Determining how much Apple is worth requires you to project future earnings. And because Apple has grown by so much in such a short amount of time forecasting becomes very difficult. In 2008 Apple recorded $32 billion in revenue. In fiscal 2012, which ended in September, revenue sat at $156 billion, nearly a factor of 5 increase. During the same period, free cash flow rose from $8.4 billion to $41 billion, again nearly a factor of 5. Clearly this level of growth can’t continue forever,” BBI writes. “How much is Apple worth if it only grows at the rate of inflation, let’s say about 3%? This is, of course, outrageous compared to the average analyst estimate of about 20% annual earnings growth over the next 5 years. And in all likelihood Apple will grow much faster than my lowly 3% rate. But let’s see what the 3% scenario yields.”

BBI writes, “Apple has about $120 billion in cash and investments on the balance sheet and no debt. With 945 million diluted shares outstanding this amounts to $127 per share of cash. This means that the market is currently valuing all of Apple’s future cash flows at just a hair over $400 per share. Apple’s $41 billion free cash flow in 2012 equates to $43.4 per share. This puts the adjusted P/FCF (after backing out cash) at around 9.2… Apple doesn’t need to grow earnings at 20% per year to justify its valuation. It barely needs to do anything at all. As long as Apple can maintain its current earnings the stock is currently a steal.”

“If you believe that Apple can at least maintain current earnings levels going forward then the stock is an undeniable bargain at today’s prices. It seems to me that the pessimism has gotten to near-ridiculous levels,” BBI writes. “Apple doesn’t need to maintain the extreme growth rates of the past to be a good buy. The fact that analyst expectations are still quite high means that the stock could fall even further if the company misses those expectations. Of course, that would just make the opportunity even better.”

Read more in the full article here.


        1. There’s nothing to see when the financials come out. This is how it works, period. Apple sells iPhones to Walmart at a set price and Walmart is free to sell them to their customers at any price they want. In this case, Walmart could even be taking a loss… probably in hopes that people who take advantage of the deal will buy lots of other things while they’re in the store.

    1. It’s helping Apple. The more consumers who are able to try Apple products will mean there’s more of a halo for Apple’s other products. Apple is making money and will make more. It’s only Apple shareholders who are losing money.

        1. Unless of course you count the $200 per share that you have lost today by not selling at $706 at the end of September. How could people not sell it when it hits $700? Did anybody really think it was going to go to $1000 in another month? You just can’t buy a stock and hold it forever. It makes no sense. First lessons of investing : never fall in love with a stock, diversify, and learn to take profits. Profit, it’s why you invest. You only make a profit when you sell an equity.

    1. He doesn’t need to. For Apple, Wall Street’s opinion is irrelevant. This is a Self-serving Wall Street attack on share value in an attempt to create shareholder fear and/or discontent to create pressure on Apple for dividends — essentially an attempt at a money grab. Without it’s cash reserves Apple could never have brought its innovations to market; no Wall Street Analyst has the foresight or courage to invest in ‘game-changing’ innovation which takes time and investment — and vision.
      Wall Street destroys innovation in America — their’s is a cash-draining strategy ahead of everything else and America is and will continue to be the worse for it.

      1. right!

        we Americans have lost it!
        lost our mind.
        lost our original foundation philosophy.
        lost our sense of freedom & democracy.
        lost our innovative vision.
        how can we beso foolish to lose our innovation over greed!
        we self-destruct.
        we blame outsourcing etc. but we are so into IPOing the living crap out of firms, earning, earning, earning, that all our sense of innovation or creativity is lost and we’re left with no vision to succeed any more – our society of the American Dream thus becomes our American Nightmare, all because we have no patience for creating, just cashing.

        it’s our own damn fault.

        but why not boycott banks & wall st.
        the folly has to stop.
        we’re never going to solve anything in our economy if the buck does not stop with us people.

        such degrading stupidity is impossible.
        let’s not go extinct, let’s think 1st, think different, for the sake of us all!

        enough bs.
        nothing gets done through greed.
        only smarts. be it educated or street-smarts.

      2. So AT, who is in charge of this conspiracy? Where do they hold their meetings? And since you understand this organized attack against AAPL so well I’m sure you have bought puts and made plenty of money as AAPL has dropped like a rock? How could you not? You have it all figured out. Surely you put your money where your conviction is? Right? Even someone like myself is smart enough to have bought puts all the way down. And I was completely unaware that it was a Wall Street conspiracy.

  1. Someone is making money on this fall in share prices and you can bet they will do whatever they can to keep it going down, as long as they can. But the “bankers” who are making money could care less about the rest of us or what we think of them. Our financial system is sick and near death, and it’s not going to get any better because they own the politicians.

  2. The reason for the decline is simple and obvious – no manipulation, no conspiracy, no magic. Apple’s share price went up so far, so fast, that there are huge numbers of people who have been riding it for 3-30 years (through 4 splits, for some people), accumulating vast sums of money, and taking the profit before 2013 locks in gains at lower tax rates.

    Why wait for a possible climb to 600, 700, or even 800 (that may not happen and certainly won’t happen this year)? And once the downward slide begins, that makes it even MORE important to get out now and lock in those gains as profit).

    There. Simple. No more confusion.

  3. Horace Dediu of asymco had said Wall Street had long been pricing Apple for zero growth. Now Wall Street is pricing Apple for less than zero growth. It’s saying Apple is priced for shrinkage like George Costanza.

    What’s even funnier is just earlier in the week, there were some analysts claiming Apple was ready for a rebound above $600. They must have gotten some investors to bite to buy in when Apple was around $550 or so. Now they just reeled in those suckers and have already tossed them into the frying pan. Do not listen to any Apple “analysts” because they are only going to bring you a world of hurt. Buy Apple if you want or sell it if you want, but don’t put your faith in any Apple cheerleader because they’re going to own you. Definitely don’t consider buying a couple of thousand shares of Apple on margin because you’re going to end up being best buddies with some ex-Hostess employee looking for his next Twinkie.

    I’d like to give Tim Cook an earful for Apple’s demise but unless I personally get my hands on him he’s not going to hear anything I have to say about Apple’s degrading situation. I know he’s not going to come to any shareholder’s defense because he’s already pocketed millions of Apple shareholder dollars so why should he give a damn one way or another.

    You can either believe Apple will go back up or not. You can either sell your Apple shares or not. It’s your choice. I’m in it for the long haul. To hell with Zaky. To hell with Munster. Those analysts can’t be trusted. Wall Street wants Apple to fail. They don’t like Apple products and they don’t like Tim Cook. That’s their problem. I like Apple products. Unfortunately, selling lots of products no longer matters to Wall Street. That’s the breaks. Good luck to the rest of you. Just don’t keep believing in a slingshot that may never come.

  4. The test will come the last trading opportunity after Christmas. Now that many people have taken their profits in 2012 at 2012’s capital gains rate, will they start putting some of that back into Apple shares as it hits its low? Certainly, the stsock will start climbing again when there’s no reason to sell.

    Apple’s fundamentals are strong, its products are great, it has no debt, and it has the most satifsfied customer base in the industry. What’s not to like? This slump will pass.

  5. Hate to rub in in, but every day I’m looking like one of the few in the MDN world who is getting this right. Apple has descended into ordinary, Tim Cook is ordinary, and the company’s halcyon days are all over. AAPL is a $400, maybe $500 stock and that’s it. Get used to it.

    1. The Surface keyboard you’re using must be dropping ‘e’,’x’,’t’,’r’,’a’ and ‘b’,’u’,’t’.

      That’s normal for Microsoft though, get used to it.

      1. The only thing MSoft I own is Office because it’s required where I work – and, iWork still doesn’t translate it right. So, I’m stuck. But, you numbskull, my point is and has been that fawning over Apple’s gadgets that have ALWAYS been a temporary thrill, is over now and Apple will rue the day they abandoned the serious business of making great, real, business computers that would have attracted the permanent market that they decided, instead, to just give up and let the hated MSoft have to themselves. It’s now too late to correct that blunder and we just have to realize the day has arrived when Apple’s phones, pads, and pods are seen as among the many and not in any way superior. WalMart – always ahead of the game – confirms that Apple’s stuff can no longer command a premium price because people don’t think it’s premium stuff anymore. Thus, APPL price is simply reflecting the reality. No amount of name calling or hopeless fantasizing over the future will change that.

  6. Wall Street understanding of value is zero. It will only value companies that have big borrowing from Wall Street’s banks. It has been teaching the corporate world that in order to gain market share quickly you need its advice and that is to borrow heavily from the banks. Big borrowers have big clout with Wall Street. If and when these companies cannot pay back the loans, Wall Street will teach them and chuck their carcasses to other predators to have a share of the loot.

    Companies like Apple without any borrowings have no value to Wall Street and so they need to be punished for any imaginary fears that Wall Street decides to tar them with.

    The fact that an elderly woman had been tasered at an Apple store probably sent Apple stock diving down to the bottom in line with Wall Street’s obsession to punish “big bad” Apple.

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