In case you missed it, the bullish fever for Apple (AAPL) shares have broken, at least among investors. This is not a bad thing for long term investors, as one more disappointing quarter and the sell-side analysts at Wall Street banks will capitulate from their exceedingly bullish collective view (with 44 Buy ratings, 6 Holds and only 1 Sell and an average 12 month price target, as of last night’s close of $137, 37% above the stock’s closing price of $100).
AAPL investors have seen this movie before, where hyper growth decelerated meaningfully as it will from 2015 to the current year from 40% eps and 28% sales growth in 2015, to basically flat growth this year. Back in 2013, eps growth went from 60% in fiscal 2012 to a 10% decline in fiscal 2013, as fiscal 2013 sales growth decelerated from 60% in 2012 to 9%. Upon the realization of this deceleration, AAPL stock had a peak to trough decline of 45% from late September 2012 to mid April 2013:
From the Spring 2013 lows, AAPL shares rallied 140% to its April 2015 all time highs, with few pauses in between:
And now, with the stock at $97 (as I write) it’s down about 27% from its all time highs made in the Spring:
Where will the stock bottom? And where should the stock be based on valuation? Should it be here, $5 higher, $10 higher, or $10 lower? That sort of work is worthless in my opinion for a stock that has traded below a market multiple its whole way up from its 2013 lows, and the whole way down from its recent highs. If you are hanging your hat on a P/E of 9x ex cash, have a ball. But recognize that is not how the stock will bottom, it will do so on a sentiment shift that has yet to happen.
For those looking for a beacon, who see clearer skies in the back half of the year as China slowdown fears moderate, iPhone growth possibly re-accelerates with the release of the iPhone 7, Watch finally takes off, Services such as Pay start to move the needle and possibly a new category to replace slowing iPad sales, then it seems fairly simple, be patient and wait for a test of the epic uptrend that has been in place since the stock’s 2008 lows, which unfortunately places the stock somewhere in the mid to low $80s:
The lower the stock goes prior to the company update to their capital return plan in April, the more likely analysts will start to jump ship for worries that it could be less than hoped given how much of their $215 billion in cash is overseas and the lack of new exciting products due out before iPhone 7 in September.
I’ll be a buyer and a long term holder of AAPL somewhere in the $80s. This company is NOT going to do a Sony, Nokia, Blackberry, or similar.
Since the last time AAPL’s stock was nearly cut in half in 2012/2013, the company has increased sales from $156 billion in 2012 to $233 billion, a cumulative $750 billion in sales, $175 billion in net income, and added nearly $100 billion in cash on their balance sheet. So unless the iPhone is going the way of iPad (it’s not), at some point 10 to 15% from here the stock is a screaming buy. But it’s still not a no-brainer yet.