Bloomberg News reports that Apple Inc. (NASDAQ: AAPL) reported a 57% profit rise this afternoon. But Apple's EPS of $1.76 fell short of the highest estimate -- $1.77 (and 'whisper numbers' were as high as $2). The result? Apple's stock is down 12% in after-hours trading. At $138.10, the stock is down 32% from its all-time high of $202.96 set last month.
Last month I discussed Apple's valuation with Erin Burnett on CNBC and concluded that it was a bit steep. The problem with companies like Apple -- that investors recognize as exceptional product developers -- is that their Price/Earnings ratios rise so high that it is very difficult for them to keep exceeding ever higher expectations.
In Apple's case, the problem today was that Apple's earnings failed to top the most optimistic of analysts' estimates and sales of iPod media players trailed projections. Steve Jobs's forecast also heightened concern that a slowing U.S. economy will cause consumers to cut back on purchases of Macintosh personal computers and iPhones.
Does the 32% drop in Apple's price make you want to buy more or get out?
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Apple securities.
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Reader Comments (Page 1 of 1)
1-22-2008 @ 7:40PM
Kenneth Gill said...
I reckon I'll be buying some Apple stock this week, to add to my existing Apple Portfolio.
In for the long haul ;-)
1-22-2008 @ 8:10PM
Marshall said...
Apple has a really strong product line, so even if fewer people are buying computers, a higher percentage may be Macs, making this a potentially good investment.
1-23-2008 @ 2:04PM
perfectfire said...
A company that sells overpriced consumer electronics going into a consumer led recession? Load me up...with puts!
1-22-2008 @ 11:10PM
Robert said...
The stocks is a steal down from $202 in December and that doesn't take into account the price targets set by analysis! Yes, back up the truck.
1-22-2008 @ 11:36PM
Rob said...
AAPL is also one my best picks for 2008 and I have done very well. Another good opportunity to buy more.
Rob,
www.WallastonInvestments.com
1-23-2008 @ 4:14PM
dsmeryage said...
Peter- do you think knowledgeable investors panic and sell stocks when they are clearly oversold and have just reported sales which are the best in their history, while giving a realistic assessment of where the US economy seems to be headed? Anyone with enough intelligence to own the stock in the first place would be hanging on to their stock, unless they were raising cash to cover margin calls, etc under these conditions. My expectations are that Apple will recover with the general market and probably a bit quicker. Don't invest money in the market you need in the short term given the present volatility.
1-23-2008 @ 3:20AM
Marc Rogoff said...
Strange that Apple gets hammered for its cautious outlook and beating the street by some margin. Texas instruments on the other hand gets pushed up in after hours for meeting expectations? What is that all about? This is an amazing company and this is a huge buying opportunity IMHO.