Where's the old love, Apple?
Wall Street has turned viciously on its
one-time iDarling. The rout in Apple's share price - it fell nearly 2.7
percent Thursday, bringing the damage since late September to 44 percent
- has many wondering when, and where, all of this will end.
answer, of course, is that no one really knows. Yes, Apple is slowing,
as companies inevitably do. But Apple remains enormously profitable and
the envy of corporations worldwide.
And yet Apple's decline in the
stock market has been so swift and so brutal that the development has
begun to change the way investors view the company. Apple no longer
looks like a sure thing.
It is a remarkable turn in one of the
standout stock market stories of recent years. Only seven months ago,
Apple's share price raced above $700 to a record high, making Apple the
most valuable company on the planet. By Thursday, the stock had sunk to
$392.05, closing below $400 for the first time since late 2011.
proximate cause of the Thursday's decline was news this week of a glut
of audio chips at one of Apple's suppliers. That, in turn, prompted
concern that sales of iPhones might fall short of expectations.
that was just one more bit of downbeat news in what has been a downbeat
few months. All told, $290 billion has been wiped off Apple's value
since September. It might seem difficult to believe, but Apple now ranks
among the biggest losers in the stock market over the past seven
months, right next to the J.C. Penney Co., that sick man of U.S.
department stores. The last time Apple was trading this low was in
November 2011. Steve Jobs had just died and everyone wondered how Apple
would carry on without its visionary leader.
Stock price aside,
Apple is bigger and, by some measures, stronger today that it was then.
It sells more iPhones and iPads than ever. It is expanding its global
reach. And it is making so much money - analysts expect the company to
report another solid quarter next week - that it has been having trouble
figuring out what to do with all of its cash. Speculation is rife that
Apple might pass some cash to shareholders in the form of an increased
On one level, the Apple story is a common one on
Wall Street: What goes up also goes down. As Apple's stock price soared
in recent years, some pointed out that the company's sales could not
keep growing - and its share price could not keep rising - at that rapid
In hindsight, Apple's surge above $700 strikes some as irrational - as does its precipitous plunge back below $400.
on the upside leads to herd behavior and panic during the correction,"
said Avanidhar Subrahmanyam, a professor of behavioral finance at UCLA.
"People just panic and the stress hormone kicks in."
One issue is
that Apple is a favorite stock among individual investors. The
investment firm SigFig estimated in autumn that 17 percent of all retail
investors owned Apple stock, four times the number that owns the
average stock in the Dow Jones industrial average.
retail investors can be amplified by hedge funds, which see everyday
investors piling in and push in the opposite direction by shorting the
stock, betting it will decline. The short interest in Apple reached a
peak in November, but has not gone down much since then, according to
data from Nasdaq.
Aswath Damodaran, professor of finance at New
York University, said the enthusiasm surrounding Apple last year
prompted him to sell his own holdings in the company when the stock was
"I was terrified by the kinds of investors coming
into Apple's stock," said Damodaran. "Not only were they coming in with
unrealistic expectations, they were at war with each other."
Recently, Damodaran began buying shares again, convinced that the fears had gone too far.
"Right now, Apple is being priced as though it has no future growth," he said.
looks cheap by the most popular way of gauging a stock's value, the
amount of profit it generates for each outstanding share. Investors are
willing to pay about $15 for a dollar of profit for the average Standard
& Poor's 500 company. But for Apple, they will pay less than $9.
its current price, investors are betting that Apple will grow more
slowly than the average U.S. company. And they are ignoring the enormous
pile of cash Apple has built up, which it could hand out to
shareholders tomorrow if it wanted.
The cash, and Apple's apparent inability to find a use for it, has taken some of the blame for the stock's recent performance.
Sacconaghi, an analyst at Bernstein Research, said that if Apple
developed a clear plan to use some of its cash to pay dividends to
shareholders it would help the company's shares, perhaps lifting them 10
percent or more. But that will not return Apple shares to their glory
days. He said the bigger problem bearish investors see with Apple's
shares is more straightforward: growth is stalling.
"That's the story," he said.
the fiscal second quarter that Apple will report Tuesday, Sacconaghi
predicts that Apple will see an 18 percent decline in net income, asless
lucrative products eat into its profit margins. In 2012 during that
same period, Apple almost doubled its net income from the same period in
Still, this is Apple - the company that produces some of
the most popular products in the world. While Jobs is no longer around,
almost all the people who worked with him are still there.
thing is sure. The shift in sentiment has been a big change for Apple
bulls like Gene Munster, an analyst at Piper Jaffray. He still sees a
host of opportunities for growth ahead. He said that, for instance,
Apple could play a big role in mobile payments.
But it's no longer easy being an Apple bull.
like getting a beating every day coming into work," Munster
said."Investors are so negative, they want to take it out on somebody. I
feel like I end up being that guy."
© 2013, The New York Times News Service