Apple: all news is bad news

Apple’s stock has taken a rather spectacular dive the past 6 months. It’s almost halved in value, and market sentiment is continually abysmal on the stock. To me it has reached the stage where all news is bad news.

I’m not a proficient trader, so I won’t comment on whether it’s the right time to buy Apple. I only want to discuss the fundamentals, and why this current stock price makes little sense in the long term.

Apple is currently trading at a P/E ratio of below 9. Bears of the stock will say this is justified because they expect Apple’s future earnings to collapse – that’s where the fundamentals come in. I think I’ve observed Apple for quite some time and I’m generally up to speed on the mobile industry trends. My opinion is that little has changed in the market outlook for Apple between now and 6 months ago (when Apple stock reached all-time highs).

Think about these pieces of info:

  • Apple’s market share in the US has stabilized, if not straight up outgrowing Android
  • In the world’s biggest growth market, China, Apple has demonstrated tremendous growth and may have become one of the largest foreign companies in China (by revenue) in the short span of a few years
  • Out of all the PC manufacturers facing the momentous decline of PC sales, Apple is the best positioned as it is the company disrupting the industry in the first place with its tablets. Yet Dell enjoys a higher PE ratio than Apple (and yes, the buy-out talks buffed Dell’s price, but the argument is still valid)
  • Most data show that Apple still completely dominates in the tablet space (in contrast, Android tablets don’t seem to be selling), and the ecosystem is thriving – Supercell, a mobile gaming company that only has two iOS games published and is only focused on designing for iPads, is on a run-rate to generate $800MM in sales in 2013. Apple’s ecosystem is a king-maker; have we seen any case studies of remotely close feats from competing eco-systems?

Apple’s stock is a weird beast. When Jobs was alive, the price was continually under-priced with fears about what his health means to the company. After his passing it had a good rally in mid 2012, but even then at its peak it wasn’t that expensive (think about Amazon’s stock, at any given point in time). Nowadays bears routinely claim that Apple is dead, has stopped innovating, and that the management is dumb (“Tim Cook should resign!”). I struggle to find any evidence supporting these claims.

Perhaps people like nothing better than for the world’s most successful, yet obviously most contrarian (it has perhaps the smallest number of SKUs for any company of its size; it insisted on vertical integration when everyone said vertical integration was dead) tech company to stumble into irrelevance, so that conventional wisdom prevails once again (“Apple is repeating its mistakes of the PC platform wars!”) and Apple is nothing but a one-time anomaly that can be conveniently forgotten. I have a feeling that Apple will live longer than they expect.

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