Join us Thursday 4/24 at 2pm Central Time, as we focus on the valuation range for Ford (F). Register here. HIDE

Not-So-Epic: Apple’s Recent Stock Plunge, in Context

Apple's (AAPL) precipitous stock decline -- down 13% since the start of the year and 35% in the past five months -- has investors unnerved and elicited a predictable barrage of doom and gloom from analysts who are openly questioning whether or not the company's best days are behind it.

In Part One of this article, YCharts covered the surprisingly up-and-down movements of Apple shares in the days before the iPhone, as seen in a stock chart.

AAPL Chart

AAPL data by YCharts

Then came the iPhone. In June 2007, just before releasing its most important product to date, Apple shares had drifted up to $122 a share. Meanwhile, Apple was selling 20 million iPods a quarter and more than 2 million Macs of various types. By year's end, just ahead of its 2008 first-quarter earnings report, the stock was hovering just under $200 a share.

In the first quarter of 2008, Apple reported a profit of $1.58 billion, or $1.76 a share, on sales of $9.6 billion, up 35% from the prior year.

"We have an incredibly strong new product pipeline for 2008, starting with MacBook Air, Mac Pro and iTunes Movie Rentals in the first two weeks," Jobs said at the time. The App Store, first for the suddenly ubiquitous iPhone and later for the eventually ubiquitous iPad, also debuted in 2008.

Yet, Apple's shares plunged from around $198 a share in December 2007 to $125 a share in February 2008 -- despite this fantastic, record-breaking and utterly optimistic quarterly report in between. Some of it was profit-taking. But a more holistic examination of what was holding down Apple shares can be summed up by the headlines of the time: "Irresponsible Credit Lending Practices Result in Record Mortgage Defaults." "House Approves Bailout But Investor Confidence Still Shaken." "Lehman Brothers Bankrupt." Madoff at Center of Massive Ponzi Scheme."

In June 2008, Apple shares were trading at $167. Not even mighty Apple, against the backdrop of these unprecedented and almost unfathomable economic developments and scandals, was able to escape unscathed. By December 2008, the stock had been halved from its June peak to around $85 a share.

By June of 2009, bloodied investors managed to regain their footing and, with rumors of a new tablet PC already in full throat, pushed Apple back to $140 a share en route to more than $210 a share by year's end.

In early 2010, the iPad arrived on the scene and, once again, Apple disrupted the market. Today, Apple is selling almost 1 million iPads a day. The stock took flight yet again and closed out 2010 above $320 a share.

At this point, it was full throttle ahead. The stock kept surging as newer iterations of its iPhone, iPod and iPad hit the market to even longer lines outside even more Apple retail stores. With very few (and brief) exceptions, Apple's chart for the next three years appears to be fueled by performance-enhancing drugs. It's straight up, not with a bullet but a missile.

But there was a major hiccup. On Oct. 5, 2011, with the stock hovering around $400 a share on its way to $700, Jobs dies at 56 from pancreatic cancer and Tim Cook takes over as CEO.

Less than two weeks later, Apple delivers another one of its exceedingly rare "misses," falling short of analysts' consensus forecasts for both sales and profits. Within an hour, the stock shaves off 8%. One of the prevailing explanations for this rarity: customers held off buying iPhones in the quarter (only 17 million sold in the quarter) mainly because they were holding off in anticipation of the next version. Such is the price Apple and its shareholders must pay for success. The stock lops off $20 a share over the next few weeks but by the end of 2011, it's back above $400 a share.

Buoyed by more record sales and earnings for its iPhone and the newly released iPad2, Apple shares explode to $600 a share in March 2012 and then briefly over $700 a share in September.

But its fourth quarter earnings report in October marked the beginning of this latest freefall. It's a familiar refrain. Despite earning $8.2 billion in the quarter on sales of $36 billion, Apple managed to miss analysts' ambitious projections and investors were quick to sell. Emerging competition not only in the smartphone sector but also from seemingly thousands of other tablet PC vendors was eroding Apple's growth rate. There's been a dearth, by Apple's standards, of new products to excite the masses and the shareholders.

By mid-November, the stock had stumbled to $527 a share and people were starting to get nervous about the first-quarter results expected in January following the holiday shopping season.

Those fears were confirmed, if one could argue that $13.1 billion in profits is something to be afraid of, when Apple yet again missed analysts' lofty estimates. The prevailing sentiment at that time (and the one that's pushed Apple's shares to below $460 a share this week) is best summed up by JMP Securities' Alex Gauna:

"They've missed expectations for the third time in the last year and a half; that's uncharacteristic of Apple and it's something we're going to have to get used to," he wrote in a research note. "It's not a bulletproof story anymore. Not to make too much of missing expectations -- the Street does have a way of getting ahead of itself -- but it does point out that it is getting harder and harder for Apple to surprise on the upside." The PE ratio fell to below 11.

Take a gander at just how much analysts have asked of Apple compared to some of its peers in the past five years:

AAPL Sales Est Current Fiscal Year Chart

AAPL Sales Est Current Fiscal Year data by YCharts

Then again, perhaps that's what should be expected of a company that was, temporarily, the most valuable company in the world. And investors, similarly, should expect some degree of slowing growth -- big difference from no growth -- from Apple's ridiculous recent history.

So, it appears there are now two important questions: Will Apple respond? And how will it respond? Given its track record over the past 15 years, it's pretty safe to assume Apple will blow everyone's minds with new products in the near future. Whether its related to the TV or smaller iPads or wearable computing or something else altogether new and highly secretive remains to be seen.

The great variable right now would seem to be leadership. We're almost a year-and-a-half into Cook's tenure and the reviews have been mixed at best. Bottom line: Will Apple, under his stewardship, be able to shrug off competitors and the law of large numbers as his predecessor did so many times to deliver new products that have changed the way so many billions of us live our lives?

Right now, it looks like investors aren't so sure.

Larry Barrett, a contributing editor at YCharts, has served as a senior writer and editor for websites and print publications including Financial Planning, InternetNews, Multichannel News, CNet and Baseline Magazine. He can be reached at editor@ycharts.com.

Read more articles about: Company Analysis  

blog comments powered by Disqus
Advertisement

Search Articles

Subscribe to YCharts Analysis

Advertisement

{{root.upsell.info.feature_headline}}.
Upgrade to {{root.upsell.info.tier_name}}. Start Your YCharts Membership. Start your {{root.upsell.info.tier_name}} Membership

{{root.upsell.info.feature_description}}

{{root.upsell.info.is_upgrade ? "Upgrade Now" : "Get Started Now"}}

Already a YCharts Member? Already a {{root.upsell.info.tier_name}} Member? Sign in here.