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The Reasons Behind Apple's Stock Decline

The Reasons Behind Apple's Stock Decline

by , 2:25 PM EST, January 24th, 2008

Apple reported healthy growth in its Q1 Earnings Report, and it's hard to find fault with any aspect of its business. Even so, Apple's stock has declined for three reasons, according to Stan Beer at ITWire on Thursday.

The market was expecting great holiday quarter results from Apple, so Apple merely met expectations. However, several factors have contributed to a depressed stock price.

"What the market is reacting to, however, are three things," Stan Beer wrote. "a lack of any new killer products or announcements at Macworld 2008, a lack of belief that Apple can sustain its breakneck growth rate, and last but not least a very real fear that Apple, being a luxury consumer goods provider at the premium end of its market, will be hit by what is now believed to be an inevitable economic downturn in the U.S."

By contrast, in 2007 customers were expecting big things from Apple based on the Macworld 2007 announcement of the iPhone. Sales of the iPhone and its successful competition against the legacy vendors drove the stock to near US$200.00.

The Macworld 2008 keynote was not so spectacular. "Comparing Macworld 2008 to Macworld 2007 was like comparing chalk and cheese. Like the iPhone, the ultra slim MacBook Air was predicted months in advance but few cared. Everyone knew it was going to be a premium priced product that would have no great growth effect on Apple's business," Mr. Beer noted.

There is also concern that with a possible downturn in the U.S. economy, the 3G iPhone will be greeted with indifference. "APPL shares have dropped because at their present level of around $139 with a PE of more than 35, investors want earnings growth to continue at the breakneck speed of 2007 if they're going to pay a premium for the stock, "Mr Beer concluded. "...and they're uncertain as to whether Apple can achieve that in the coming year."

iPO notes that a gloomy atmosphere often tends to put Apple's achievements and prospects in a tainted perspective. There's no sign that Apple is letting up in any of its business areas, and an iPhone announcement in a Macworld keynote only happens once in a lifetime.

Observer Comments

Show: Subjects Only | Full Comments
Close Name:Guest
Subject: Luxury consumer goods?

I just love how Stan Beer labels Apple's products as "luxury consumer goods". I wonder if that label will ever be dropped? Feature wise they are extremely competitive with other brands of other products - if not cheaper.

Sheesh.

Close Name:j.martellaro -   TMO Staff Posts: 97 Joined: 07 Dec 2006
Subject: Luxuries

I believe he meant as opposed to necessary consumer goods such as food, clothing, shelter, gasoline, etc.

-JM

Close Name:Guest
Subject: Get the Math Right (PE 35 * Earning TTM $4.56 = $159!)

I don't think that this guy has any experience or credibility. He can't do the Multiple Math right!

PE of 35 on Trail Earns of $4.56 (Q2'07=0.87, Q3=0.92, Q4=1.01 and Q1'08 =1.76) would mean a Stock price of $159.60 per share, not $135.

The 2008 estimate is about $5.09 and 2009 is $6.20. With the PE of 35 those yield $178 and $217.

Close Name:Guest
Subject: pretty accurate description

i have to agree completely. i sold all my shares a LONG time ago (circa $190) because i knew the growth wasn't going to keep going and i had a feeling that macworld would be less than spectacular--and spectacular is what everyone was paying $200 per share for.
macs are the bmw of personal computers so it is a luxury good...i mean, the comparison on specs for a g5 goes for about 50% less on dell than on store.apple.com...
http://www.positionmakers.com

Close Name:jfbiii Posts: 109 Joined: 06 May 2004
Subject: Competitive Luxury

Feature for feature, there's very little "Apple Premium" anymore on the hardware. The luxury label stems from the fact that they don't manufacture feature-poor products for the low end of the market. Because Apple isn't about market share, they're about profit share.

Close Name:Intruder -   TMO Mac Specialist Posts: 3149 Joined: 07 Jul 2004
Subject: Re: pretty accurate description

Quote
Anonymous wrote:
i have to agree completely. i sold all my shares a LONG time ago (circa $190) because i knew the growth wasn't going to keep going and i had a feeling that macworld would be less than spectacular--and spectacular is what everyone was paying $200 per share for.
macs are the bmw of personal computers so it is a luxury good...i mean, the comparison on specs for a g5 goes for about 50% less on dell than on store.apple.com...
http://www.positionmakers.com


Apple hasn't made a G5 machine for quite a while (discontinued in August 2006), so not sure how that last bit of your post has any relevance at all. Go do a comparison on 8 core pro desktop machines and see if there is a vast difference in price.

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