Apple's share price has not had any correlation to its fundamentals for the last few years. If you were to compare its P/E ratio to that of other tech companies out there (Amazon's is 3628) it would technically be undervalued even at its current price.
That said, most of the volatility comes from all the prop trading firms trying to turn a profit. AAPL is considered a bullish stock amongst fund managers and is often used to hedge against other riskier positions in the market. Often times big dips in Apples stock can be attributed to profit taking (especially around this time as we finish up for the year and get nearer to the end of an American financial quarter – gotta look good on the books to the get Christmas bonus) and margin calls on bad trading days. You’ll notice a dip in the afternoon of any bad trading day as prop firms start getting margin calls on their failing positions and have to sell to cover their losses.
But it's also not reasonable to compare Apple's P/E with Amazon's. There's more to valuation that industry; Apple and Amazon are both "tech companies", but they have wildly differing business models. In particular, Amazon is aggressively buying market share and the market is financing that. The market says Amazon could radically more lucrative in the future, in a way Apple won't (it's already absurdly profitable).
I understand this point of view, but it doesn't seem likely to me that the expected future profits of Amazon can be realistically expected to be 283x the expected future profits of Apple. I just don't see any way to support such a big multiplier.
Without getting into the specifics, we can think of the P/E both as a measure of how speculative the future earnings are (Amazon, which is consistently and deliberately barely profitable, reflects little of its upside in its earnings; Apple, on the other hand, is milking its cash cows for all they're worth); another way to think about it is, Amazon is plowing more of their earnings back into efforts to buy market share, where Apple is extracting them into cash reserves right now.
Remember, Apple's market cap is still much larger than that of Amazon. Even though Amazon has what over the long term might end up being a much more lucrative model, in that it is poised to more or less control retail and retail logistics everywhere.
They're both great companies, but the P/E of each company tells a different story about their business (neither story is bad).
Sorry, I misspoke above. Rather than edit I'll just correct myself here.
What I should have said is:
The expected future profits of Amazon would have to be 283x their own current profit (sorry, not Apple's profit), to arrive at a P/E similar to Apple's now. (In other words, to match Apple's strategy of extracting max profits to cash.)
That is a smaller number than I implied above, but it would still require Amazon at some point in the future to make a profit of $178 billion in 2012 dollars--more than 4x Apple's current profits.
To achieve that with, for example, the profit margin of Walmart (the current dominant retailer), they would need to do about $5 trillion in sales, again in 2012 dollars--about one third of U.S. GDP, or 1/14 of world GDP.
If we spot them Apple's current profit margin, sales would still need to be about $670 billion--about $180 billion over Walmart's current sales (at much higher product prices).
So while I totally understand the idea that Amazon is reinvesting for future growth, I just don't think future growth could ever be high enough to justify the stock price now.
And they are right. Amazon is the next Walmart, but on a global scale.
Apple is just a high-end tablet maker, and they are getting hit very heavily by their competition. You can't ride forever on the fanboy wave and the brand wave. Fanboys will realize the competition is better, cooler, cheaper, and Apple brand is already toxic, it's not cool anymore.
Not anymore. Andoid phones and tablets are way ahead of what Apple is offering, spec-wise. Android OS is even further ahead of iOS, which has been a stale grid of icons for what, almost a decade now.
I agree that Apple used to be on the cutting edge of technology and innovation. Now they are desperately trying to catch up with the competition, and fail every time. They still do have good sales, but that won't last.
This renewed focus on market capitalization (and "valuation") has gotten a bit absurd. Market capitalization is an _approximate_ measure of _implied_ whole-company value. Approximate because we don't really know the number of shares outstanding, and whether you should use shares outstanding or fully-diluted equity, or heck, fully-diluted equity net of cash, depends on the application. It's also approximate because the share price only reflects the last trade or the inside quote. But that is only the price that _somebody_ (the most aggressive buyer or seller) was willing to pay/accept; if you wanted to buy or sell lots of shares (e.g. a whole company) obviously you wouldn't get the inside quote for all of it.
Most fundamentally, from a corporate perspective it's not like the company "loses" anything on its balance sheet when its shares change hands at a particular price. The share price does affect the company's cost of capital, but not so simply and not directly. Apple in particular is not going to need cash any time soon.
The more relevant measures of corporate health are the traditional revenue, net income, free cash flow, etc. It's true we don't get updates to those quantities every microsecond but they are still more important.
To the extent a 6% drop might reflect somebody somewhere with groundbreaking secret information that casts Apple's future income in doubt who has decided to place a big bet, yeah, it's possible, but it's too soon to tell and we don't really know what it means. (As Steve Jobs said, "Stocks go up and down.")
The key risk for Apple is what its future earnings will be. Given that its current earnings dwarf anyone else, one must believe they will be able to be maintained which is equivalent to a bet that the iPhone will continue to be sold in high quantities with high margins.
In the last year Apple generated $55B in pre-tax earnings. They had $80B in revenue from the iPhone at a margin of >60% or $48B. They sell the iPhone for an average of $642 while the Nexus 4 retails at $299. If the iPhone dropped to a wholesale price of $399 ($100 pricing advantage), it would reduce pre-tax earnings by $30B (55%). If iPhone sales double that would offset about 60% of that decline.
Another way to ask this question is what total mobile phone profits will be in mature market. If there are 7B phones replaced every 4 years, that implies 1.75B phones sold. Cost will likely fall so revenue could be 437.5B. If Apple can capture 30% of that with margins more similar to the Mac (~30%), this suggests even if Apple continues to make better products and can maintain significant market share, they'll earn 20% less from the iPhone than they do today.
Of course Apple has an extraordinarily successful iPad business but its margins are much lower than the iPhone and as an unsubsidized device will likely face greater pressure.
The questions to ask is evaluating Apple are: When will their earnings peak and by how much do will they fall before they reach an equilibrium. While this may be anathema to some and I admire what Apple has achieved, large economic profits cannot exist in the long run in a competitive market. Why is a longer discussion but I challenge the reader to pose a counterexample.
The Nexus 4 sells so cheaply because Google subsidizes its price heavily. Google is losing money on every single one that is sold, which is why it sells in such low volumes. It is a competitor to the iPhone in concept only.
A better comparison would be a recent 4G smartphone like the Samsung Galaxy Note 2. It lists for $699 and is available with a 2-year contract for $299 from Verizon--$100 more than the iPhone 5. Or the HTC Droid DNA, which lists for $599, available on contract for $199. Like Apple, Samsung and HTC are actual competitors in the market and need to make money on each phone they sell.
The flaw I see in your analysis is that it presupposes that competitors to Apple are going to be able to significantly undercut Apple on price. Apart from subsidized Nexus phones, I don't see much evidence that is true.
Were there any rumors/news/anything today that triggered the movement? AAPL is behaving more like a penny stock than the $500-billion behemoth it is.
It's also interesting to see how its P/E is lower than Microsoft's now. Given the generally lukewarm reception towards Windows 8 / Surface, you'd think more investors would be fleeing from MSFT. I sold my MSFT shares and went short last month after buying (and returning) the Surface RT.
>"Were there any rumors/news/anything today that triggered the movement?"
There was an obscure clearing house that upped its margin requirement for APPL holdings that made the news this afternoon. Now why that triggered a sell off, I couldn't tell you. I'm no Apple bull, but this was sort of odd. Can't really trust anything happening in the markets the past few months.
Were there any rumors/news/anything today that triggered the movement?
I guess China Mobila signing a deal with Nokia for its Lumia Windows-phone 8 for it's 700 million subscribers, wont mark any improvements for Apple's already declining global market-share among smartphones.
Soon Apple's iPhone and iOS will be a sub 10% market-share actor, and then people are going to ask themselves if they are going to bother to develop for the platform at all.
Seeing as Apple currently lives on two products only, the iPhone and the iPad, both dependent on each other for its success, being in the position where one of those two products turns into a failure speaks badly about its future.
Taxes on the wealthy and their capital gains are going up! Between now and the end of the year I believe you will see a LOT of selling from people and institutions holding large positions. Regardless of whether or not we go over the 'Cliff', capital gains tax rates will be going up and lots of selling will occur that drives down stock prices.
You're right! The stock never crested above 400 while Jobs was alive, so the fact that it's fallen to 540 (and mostly recovered in after-hour sales) WOULD never have happened while he was alive.
Steve Jobs was an exceptional marketing guy, but even manipulating stock prices would have been out of his reach. I seriously doubt that Steve being alive or dead would have changed much.
That said, most of the volatility comes from all the prop trading firms trying to turn a profit. AAPL is considered a bullish stock amongst fund managers and is often used to hedge against other riskier positions in the market. Often times big dips in Apples stock can be attributed to profit taking (especially around this time as we finish up for the year and get nearer to the end of an American financial quarter – gotta look good on the books to the get Christmas bonus) and margin calls on bad trading days. You’ll notice a dip in the afternoon of any bad trading day as prop firms start getting margin calls on their failing positions and have to sell to cover their losses.