How Apple gets to $400 a share

“As Apple’s share price has fallen over the last four months, dropping some 25% percent after first breaking the $700 mark in September, I’ve again become interested in the stock,” Vince Martin writes for Seeking Alpha. “The fundamentals, of course, remain outstanding. Even an AAPL bear would admit that, on a purely numerical basis, Apple looks cheap. At Friday’s close of $520.30, the company’s trailing P/E sits below 12. This despite revenue and earnings growth of 44 and 59 percent, respectively in fiscal 2012 (ending in September). The company’s cash hoard of $121 billion could buy all but 43 of the world’s publicly listed companies, including Amazon.com.”

“Those risks are real. As dominant as Apple is now, the tech world — particularly its consumer segment — is a highly competitive sphere, and leaders can turn to laggards exceedingly quickly,” Martin writes. “Barely more than two years ago, RIM’s Blackberry was the leading smartphone platform in the U.S.; it’s now a distant third.”

MacDailyNews Take: RIM is Dead Company Walking precisely because of Apple.

Martin writes, “The idea that Hewlett-Packard and Dell would even consider exiting the consumer PC business would have been laughable just a few short years ago.”

MacDailyNews Take: Yet, it’s now reality – because of Apple.

Martin writes, “So, how can Apple’s enterprise value fall to $300 per share, or roughly $282 billion? The same way any other stock’s value can fall:”

1. Multiple Compression
2. The “Black Swan.”
3. Portfolio Re-Balancing
4. Below-Average Earnings

“In short, I do understand the bear case for Apple, and I think the risk of it becoming just another tech company — if not a fallen star like RIM, Hewlett-Packard, or Nokia — is material to the stock. But so much of it is priced in at current levels, giving the stock a substantial downside cushion… All told, the risk of a fall at Apple like those of RIMM (140 to 10), HPQ (65 to 16), or NOK (40 to 4) seems sharply remote. Even a drop to 400 from 520 seems to require outright struggles that Apple has managed to avoid for most of the past decade,” Martin writes, “With an apparent downside cushion, investors can then focus on the upside, which remains vast… The risks appear to be acceptable, as a drop to $400 would require a confluence of unlikely events.”

Much more in the full article here.

41 Comments

    1. So, if absolutely everything goes wrong and the world basically ends, Apple could drop to $400.

      But if only one or two easy things go right (or if they simply stay the course), we’ll be seeing $1000, or even $2000 a share one day soon.

      Any investor should be jumping at that scenario. The risk-reward equation is stacked firmly in AAPL’s favor.

  1. Wow, talk about a roundabout web bait article that’s much ado about nothing! Most of us Apple bulls are not worried about a $300 or $400 Apple stock price ever happening anytime soon as they continue their ascent for years to come. is appointing that Wall St. Can’t believe their good Apple fortune and are so pessimistic about where Apple is going ascribing scenarios that only much inferior companies might succumb to. It makes you realize how much smarter you are than most of these dum-dums.

  2. Except Apple has had none of these things happen and yet the stock is falling. Even the last quarter was record earnings for Apple and yet the ANAL-ISTS dropped Apple stock like they were making blackberry’s or something. Why is Google so high? What have they done? Record earnings like Apple, NO! Great products like Apple, NO! Cash in the bank plus no debt like Apple, NO! I just see no point to knocking down Apple stock when all signs of performance are above average and the risk with no debt and cash in the bank makes it so low. Oh and the maps thing, has it really hurt sales of iPhone 5, NO!!!!!!!!!!!!!! You know why? Because it was blown out of proportion B.S! I’ve used it several times with perfect results.

    1. You will buy back but with less capital after paying capital gains tax and you may have payed the higher short term capital gain tax rate penalty. Not to mention when to hit the buy button – very hard to time re-entry with money normally left on the table.

    2. Same here Brunet. I took my profit at $700. I was thinking about getting in a little bit this week but may hold off now that the Wall Street Journal is reporting a reduction of iPhone five parts orders. Could be due to the impending iPhone due this June? Perhaps an additional smaller iPhone too? Whatever the case, this could drop the shareprice appreciably.

      1. Wow! That $700 decision looks so good now Brunet. So glad I pulled the trigger. I thought about being greedy and staying in longer but I knew it was time. We’re certainly headed back under $500 today. I certainly feel for those people who didn’t get out at the top. So much for buy and hold. Damn!

  3. There is really quite a lot of bearish “sentiment” around Apple. And by “sentiment” I mean ideas divorced from any quantitative reality. But it makes me dream of $400. Because, frankly, I had to liquidate on the way up and I’d love to get back in under $500.

    Sooner or later Tim Cook is going to admit what we all know… Apple is a disciplined money printing machine. All the investments they want to pursue barely make a dent in the fire hose of new cash. They’ll never need their pile of cash. Not a dime of it.

    All of the shorts are ignoring all that cash hanging over their head. A shock and awe buyback announcement — perhaps just an annoucement — could create the largest short squeeze in history!

    But talking my own book: please be short and go shorter. Sell me stock you don’t own at under $500/share. Pretty please. You’ve got momentum on your side how can you lose?

    1. I’ve asked this before and never received a serious answer, but am still curious so will ask again.

      If Apple was to drop say 10 or 20 billion dollars to buy back shares, is that something they can legally do anytime or do they have to do it over a set amount of time, pre-announce it etc ?

      I’d love to see what happens to the price of the stock and all the people shorting the stock if Apple did something like that in response to a big drop.

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