Apple's stock price will collapse to less than half its value, according to a research note from German investment bank Berenberg. AppleInsider reported analyst Adnaan Ahmad told the bank's clients that Apple is too reliant on the iPhone and will have to slash prices because la la la shut up you're not the boss of me.
He issued a price target of US$60 per share for Apple's stock, which closed Friday at $128.46, down $1.955 (-1.50 percent), on average volume of 62 million shares trading hands.
From the research note:
As this accelerated replacement cycle slows down, iPhone volumes will turn negative in terms of growth. As we have also stated, there is, in our view, a limit to how much share Apple can take at the high-end, and its price premium and recent hike must narrow over time, as it has done in the consumer electronic space (even for Apple's other products — iPod, iPad and Mac).
Never mind that the exact opposite is true. Apple's iPod, iPad, and Mac prices have been ridiculously consistent over the years. The idea that an electronics company could maintain a premium brand without joining the race to the bottom is an ever-elusive one for many analysts, and that appears to include Mr. Ahmad.
Which isn't to say that Apple can't make a mistake, and it's certainly not to say that Apple can grow forever. But Mr. Ahmad's fixation on Apple's inevitable decline at the high end of the market is another example of the faith-based approach in believing Apple is doomed.
I should also point out that Apple's stock has corrected and over corrected many times over the years. It will almost certainly do so again, but a target price of $60 is, to say the least, a leap of faith that would do Job proud.
Another principle of Mr. Ahmad's gloom is that Apple derives 70 percent of its revenue from the iPhone and 85 percent of its operating profit. This is true, and it's the sort of thing that every analyst rightly pays attention to. An over-reliance on any one product line has historically proven to be a major risk to corporations large and small.
The question is can Apple diversify its product line in such a way that the iPhone becomes less of the giant spike in its performance. Remember that the exact same concerns were raised about the iPod a decade ago. Apple was too reliant on iPod, it must cut iPod prices, iPod margins would fall, DOOM!
Apple ended up disrupting the iPod with a little device called the iPhone, and it followed with the iPad. Apple Watch is coming—Mr. Ahmad doesn't think much of it—and we now know Apple is working on an electric car. There's evidence that Apple is also working to make more of an inroad into the television space (through content delivery, if not Gene Munster's infamous TV).
Even more importantly, we have plenty of evidence that Apple's management is more than capable of keeping its eye on the future and planning accordingly.
Interestingly, Mr. Ahmad thinks the Apple Car a splendid idea. How being bullish on the car fits in with a price target located in fantasy land is beyond my kin. On the other hand, he thinks that Apple should acquire Tesla to get its foot in the market.
In my opinion that should disqualify Mr. Ahmad's opinions about Apple, a company that never buys its way into markets. Apple's entire value is predicated on the practice of innovating and disrupting markets, not purchasing them. Understanding this is fundamental to understanding what makes Apple Apple.
All of which makes a $60 price target for Apple a joke or a supreme exercise in expressing faith in Apple's demise. $60 a share would value Apple at $348 billion. That's less than two times Apple's current cash hoard. It's kind of whacky.
Mr. Ahmad's faith has earned him a spot in the Apple Death Knell Counter as entry #68.