Apple’s earnings expectations have no basis in reality

“Apple (AAPL) reported earnings last month and although record revenue and profits were seen, shares were punished, falling almost $64 in one day to settle in the $450 area they still trade in today,” Josh Arnold writes for Seeking Alpha. “So why did market participants punish Apple shares so harshly? Disappointing guidance was the culprit. To my view, the market has decided that Apple no longer knows how to make and sell its products and that the company is going to slowly die off in the coming years. Of course, this is ridiculous as Apple’s domination among consumers is still intact.”

“So what does the market actually expect out of Apple? We’ll use a DCF analysis to put the pieces together and see what Apple’s doomsday expectations look like,” Arnold writes. “Apple is currently priced to grow earnings by only 3% in the coming years, despite analyst expectations of over $80 per share in earnings in 2018.”

Arnold writes, “I understand that a big reason why Apple has fallen so precipitously is because when earnings estimates are falling and guidance disappoints, no one knows where the bottom is and nobody wants to be caught holding the bag. However, when shares have gotten so preposterously cheap, it is hard to ignore. If we look at priced-in expectations, we can see that as long as Apple can exceed three percent earnings growth for the foreseeable future, shares should outperform. In addition, if we assume that Apple will make $80 per share in earnings in 2018, even at the ludicrous valuation of 8 times earnings, shares should trade at $640, or roughly 40% higher than they are today. If we apply a 10 times earnings multiple, shares would trade near $800.”

Read more in the full article here.

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]


  1. even a simple EGG analysis with respect to BUN has SALM levels running above historic BACN (adjusted for PBAJ).

    You wonder if some of the analysts who undervalue AAPL even know how to adjust for PBAJ lol!

    1. Hey Squiggles – nice to see you’re alive and well, and your analysis tools look good. I’d recommend a quick look at the TOST and BAGL with BUTR spread to see if they correlate with your earlier analyses.

      Welcome back. you’re the only analyst whose charts go down well. 🙂

  2. ““So why did market participants punish Apple shares so harshly? Disappointing guidance was the culprit. ”

    Share value for Apple have NO DIRECT connection. Share value is just the markets efforts to try and get Apple to give away all that cash (that is locked up overseas) for the promise of a higher share value.

    Apple is making so much money that it CANNOT grow using the % rules. It grows by adding sales in dollars and adding cash to its available money on hand. It grows by selling to even more people that will never go back to android or microsoft….. ever. ( ala Taylor Swift, “We are never getting back together……. ever!”) lol

    Apple value will begin to level off when it sells about 40% – 50% of the worlds computers (counting tablets) on a regular basis.

    Just a wonderful thought.

  3. Holding and Buying more AAPL shares now!!!

    Remember that during the financial era of 2008-2009, AAPL went down to $78 from $200. Yet as it is now, Apple Inc has still Zero debt, $150B in Cash, selling zillions of hot products, opening New AAPL Stores worldwide. Plus management is so focus on Great Products & SW.

    401k happy with AAPL as it will be going Up again 🙂 Buy!

    1. In 2018, Apple’s P/E will be somewhere’s around 4.x if the current shrinking P/E trend continues. I’m fairly certain Apple shareholders will never see the value from Apple they’d see from Amazon, Netflix, Google, Intuitive Surgical, Priceline, etc. as far as a high share price is concerned. I’ve already given up on that. Hopefully, dividends will rise for loyal shareholders. Wall Street will continue to devalue Apple for whatever reasons it can. They just don’t like the company.

  4. It doesn’t matter what stocks or bonds are being traded. Their names, fundamentals, history or reputation doesn’t matter. All that matters is the spread. Wall Street Quants are engaged in classic arbitrage, making a fortune on trading on a few basis points.

Reader Feedback

This site uses Akismet to reduce spam. Learn how your comment data is processed.