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Concern about the health of Apple's co-founder and chief executive has reportedly been one factor damaging stock prices.  (Source: Cupertino City Council)
Concerns about overvaluation, succession are top on investors' list

By market cap Apple Inc. (AAPL) is the world's biggest tech company, having recently passed Microsoft Corp. (MSFT) for that spot.  Apple also recently passed Microsoft in quarterly profits.  And the company blows past analyst estimates virtually every single quarter.  Still, all is not well for Apple in investors' eyes.

Apple stock hit a high of $364.90 in February 2011, and has since churned, cycling up and down.  But since the start of June there's been consistent downward momentum, which has dropped the stock to well below its cyclic lows, plunging it to $315.32 USD a share at the bell on Monday, June 20.

Most analysts attribute that 15.7 percent drop to uncertainty about the succession plan for Apple, after the departure of chief executive Steve Jobs.  Mr. Jobs, who co-founded Apple in 1976, returned to the company in 1997 and transformed it from a struggling boutique vendor to the world's largest gadget maker.

But with Mr. Jobs suffering from complications of pancreatic cancer, which caused him to need a liver transplant, his health has been a major concern over the last several years.  Most recently Mr. Jobs took yet another medical leave of absence, though he's still giving public presentations and attending company meetings.

Henry Blodget at Business Insider writes:

In a way, the situation Apple finds itself in is akin to an impending CEO retirement--without a successor having been named. In such "lame duck" periods, companies can become paralyzed, as managers focus more on their own future and political stature and uncertainty and less on the business.

And, in Apple's case, unfortunately, the situation is even worse: No one knows whether Steve will return, or when, or even when the question of his return will finally be put to rest. So the company is in a sort of perpetual purgatory.

The source of Apple's stock drop may also be of a more technical nature.  In terms of price-per-earnings ratio, the stock is somewhat overvalued at a P/E ratio of 15.0 (by contrast Microsoft has a 9.7.  P/E ratio isn't always the best judge of performance, but some fear that Apple's stock has risen too far, too fast.

Additionally, some believe the options markets are dragging the stock down as trading was flat for much of last week until Thursday-Friday.  However, a 1.5 percent drop on Monday dispels that theory somewhat.

Some investors still stand firmly behind Apple.  Andy Zaky of the Bullish Cross says that Apple stock will likely reach $500 USD/share, so is a great buy at $300-$320 USD/share.  He writes:

Because of the market's short-term blindness to this obvious reality, we find it prudent to put a strong-buy rating on the stock if it so happens to trade under $300 during a potential brutal summer correction.

His sentiments are echoed by Horace Dediu at Asymco.

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RE: Pluhleeze
By MarcLeFou on 6/21/2011 10:24:18 AM , Rating: 2
I actually agree with Mitch's evaluation of the company from a financial standpoint. I'd never buy Apple Stock myself. I think it's way overvalued because markets tend to be overly emotional and Apple is "in" right now. Same thing with Google's though. And RIM's stock was the same 3-4 years ago. Microsoft's stock would be a better option since their dividend to share value ratio is much better than it was 10 years ago and has been increasing every year but I do have some concern over their future. Windows 8 will be make or break even more than Windows 7 was. If they can't break into the tablet market in a huge way with Windows 8, I think Windows stands to slowly miss a huge percentage of future sales as I see home use computer sales declining to go to tablets and smartphones for the bulk of the "normal" users. I still think MS will always have a solid business base so the company will always be healthy but they definitely have some huge challenges ahead if they want to retain their market positioning.

The trick is to try to buy when others are selling and to sell when others are buying. I heavily invested in the market in february 2009 while everybody was buying obligations at 2-3% and still selling stocks. Good for me as those investments paid off in a big way and more than made up for my losses in 2008. That's why I don't think Google and Apple are good stocks to own mid-term.

RE: Pluhleeze
By Samus on 6/21/2011 11:36:37 AM , Rating: 1
It's about how many people Apple has killed, opposed to how many people Google has saved from being killed.

Think about it...

RE: Pluhleeze
By Tony Swash on 6/21/11, Rating: -1
RE: Pluhleeze
By insurgent on 6/21/2011 5:53:16 PM , Rating: 3
Uhh.. is brain dead legally dead? If so guess what, Apple killed you! :D

RE: Pluhleeze
By Tony Swash on 6/21/11, Rating: -1
"This is about the Internet.  Everything on the Internet is encrypted. This is not a BlackBerry-only issue. If they can't deal with the Internet, they should shut it off." -- RIM co-CEO Michael Lazaridis

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