By Richard Saintvilus, The Motley Fool
Filed under: Investing
When analyst Gene Munster of Piper Jaffray, a renowned bull of tech giant Apple , decided it was time to lower expectations for the coming quarter, I realized I had no choice but to listen. After all, given the punishment that the stock has already suffered, falling almost 35% over the past six months, it would seem that expectations are already low. Besides, it’s not as if Apple has ever enjoyed a robust price-to-earnings ratio like Amazon.com, whose P/E often sits well in excess of 100 and presumes ever-lasting growth.
Apple’s music had already stopped last September, when shares began their descent. Nevertheless, Munster, who proudly wears the Apple fanboy moniker and has a price target on the stock of $767, issued a note on Tuesday to clients warning that the Street’s expectations, although lower, are still too high. Munster advised that “the company will have to get through a dry patch before things start looking up again.” I shook my head at the thought and wondered: Does the Street really have a good grasp on this company?
What is Apple today?
With the stock price still at depressed levels, investors are trying to understand what the company really is. Is Apple a value play or a growth stock? And if it’s true that things can still get worse, especially after all of the punishment, it’s time to reassess Apple’s position as a tech leader. There’s also the issue with the company’s $137 billion cash hoard. Investors are demanding that the company buy back shares or increase the dividend.
Management claims to be listening, but so far there’s been no response. With regard to the stock, management hasn’t shown that it cares about shareholders’ petitions. Granted, the team is focused on the long term. But the company’s direction is still unclear. And I’m becoming increasingly convinced that management may not know. The team recently said that Apple is a “software company.” But when looking at Apple’s actual business, it’s hardware that rules in terms of gross sales and margins.
Besides, other than periodic updates of Apple’s iOS, there has been no real announcement suggesting how software is ever going to drive long-term growth. Meanwhile, aside from constant rumors of a watch and a TV, there are no clear signs of what’s next. And the only sign that’s become apparent lately is that Apple is no longer the champion of flawless execution that it once was. Meanwhile, Google has been hitting new 52-week highs and BlackBerry‘s new phone just landed on the market. Is this what Munster is warning against?
Where has all the growth gone?
Since hitting a 52-week low of $419, the stock has been as high as $469, increasing 12%. It seems Apple is turning the corner, or the stock has bottomed. Sentiment is beginning to change. So why now did Munster think it was time to issue his warning? He’s modeling for lower revenue growth at $41.3 billion, which is the …read more
Source: FULL ARTICLE at DailyFinance
