Shares of Apple stock get no respect

Mon, May 23, 2011

Finance, News

Without aberration, Apple posts record breaking earnings results quarter after quarter. And while Apple’s stock has skyrocketed considerably over the past couple years, it still seems that Wall St. isn’t giving the stock a fair shake.

In an in-depth piece on the matter for Seeking Alpha, Andy Zaky delves into Apple’s financials and explores why investors aren’t give Apple shares the boost they inexplicably give to other stocks that objectively don’t perform as well.

First off, Zaky points out that despite reporting 92% growth during its most recent quarter, Apple’s shares have remained relatively stagnant since. Indeed, Apple shares are now trading in the low $330s, just a tinge above the $320 range it was trading at seven months ago.

Aple’s stock price has simply been unable to keep pace with its explosive 90% growth in earnings. As a result, Apple’s P/E ratio has gradually fallen over the past year to the point that the stock is now trading at the lowest valuation we’ve seen since the depths of the financial crisis — the stock currently trades at a mere 16.5 trailing P/E ratio.

Quarter after quarter over the past 5 years the stock repeatedly posts over 50% EPS growth, yet Apple cannot seem to get any love from Wall Street. For the past five years, analysts have been expecting Apple to grow at a pace of only 20% — despite Apple’s average 50% growth rate — and for the next five years, we’re hearing the same old nonsense all over again.

So for all the folks who refer to Apple stock as the darling of Wall St., Zaky explains that it’s a load of BS. On the contrary, Wall St. largely treats Apple like a red headed step child with no reward for a job well done – an especially egregious outcome given that Apple’s future prospects consistently look brighter than their past successes.

One interesting point relayed by Zaky is that the Apple of 2011 reported $6.40 EPS during its weakest seasonal quarter. But going back just three years to 2008, the $6.40 figure is almost more than its entire earnings accumulated during that whole year.

And yet Wall St. seems to be ignoring the reality starring it back in the face.

Part of the equation is rooted in the mainstream media’s obsession with Apple and it’s desire to turn every little mountain into a molehill.

To wit, Zaky points out that on the same day Apple reported 92% earnings growth (a remarkable feat by any standard), the crux of nearly every mainstream Apple story at the time focused on the ridiculously overhyped iPhone tracking issue which, as expected, turned out to be nothing more than groupthink coupled with political paranoia.

Meanwhile in other parts of town:

Yet, when we see Google report 17% earnings growth and trade a 20 P/E ratio and then watch Apple report 92% earnings growth and trade at a 16 P/E ratio, how in the hell can anyone say that Apple is treated as a darling? Amazon missed earnings expectation for the third time in five quarters, and grew at a far lower growth rate than Apple on both the top and bottom line and trades at a 90 P/E ratio. Netflix also missed expectations, grew at a far lower growth rate than Apple on both the top and bottom line and trades at a 70.58 P/E ratio.

For whatever reason, there seems to be this major imbalance in large cap tech where the worst performing stocks get the best valuations and the best performing stocks get completely sh** on. On an objective basis, Apple is very undervalued, and can hardly be called the darling of Wall Street. Amazon misses its expectations and the stock rises 10%. Wall Street would have an absolutely sh**-fit if Apple missed on the top or bottom line. The stock would get absolutely crushed. You would see the stock trade at 8 times its cash and 12 times earnings if the stock actually missed.

And compounding matters are a number of reports detailing Apple stock manipulation where hedge funds work the system to systematically control the ebb and flow of Apple stock in an appreciable way. We can only hope that Wall St. will eventually catch up to the realities of Apple’s financial statements but that’s been a hope people have had for years.

In the meantime, Apple investors will have to rely on Apple to keep on innovating, churning out revolutionary new products, and accumulate untold stockpiles of cash quarter after quarter.



1 Comments For This Post

  1. Micah Lamar Says:

    Great article.

    I’ve been investing/trading Apple stock and Options for years now, and it’s been a very exciting time to invest in Apple. Many people are wondering:

    Why Apple Stock is going no where?

    Top 2 Reasons:

    1. The Whole Market is going no where and is in a sideways trend. Most stocks follow the over all market.

    2. Apple Stock needs to consolidate in it’s current range before making another leg higher. This will build a solid foundation for more growth.

    Bonus – Stocks go up, down and sideways. It’s best to learn ways to invest in all three types of markets.

    Even in the face of great earnings, it’s completely normal for stocks to be range bound.

    Covered Calls are great strategies to cash flow Apple Stock while it’s range bound!

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