Apple Inc. (AAPL) continues to blow the cover off the ball when it comes to quarterly results, yet the stock has been stuck in place for what seems like eons. How can the stock not be moving up when it’s so clear to everybody how well things are going over in Cupertino, California? Nobody knows for sure, but I have a few thoughts.
Underperformer?
It’s hard to imagine, but the stock has underperformed the S&P 500 over the past three and six month time frames. This is despite the fact that the company has posted positive earnings surprises of 19%+ in each of the past two quarters. So this obviously begs the question, “what is going on?”
First of all, I think investors have been a bit spooked about the effects of the Japan earthquake on tsunami on the company’s supply issues. After its recent quarter, management said that it didn’t see any supply impact for Japan, but investors may not fully buy it. I think if Apple blows away numbers again this quarter, the stock could get a longer-lasting pop as investors believe the company has overcome the Japan issue.
The second worry that investors have deals with the law of large numbers. Apple is already the second most valuable company on the planet with a market capitalization of about $315 billion. This is incredible for a company that sells consumer products and whose main products are relatively new.
The huge sales growth of 83% year-over-year just doesn’t seem sustainable to many investors for a company of this size. I think if the exact same company had a market cap of $31 billion, the upward thrust would be much more powerful.
Finally, I believe that investors are worrying where the next big innovative thrust will come from now that the Steve Jobs area appears to be winding down. He has been the face of Apple and his health concerns are certainly on the back of people’s minds. Of course the company is more than one person and its innovation will continue. Sources of growth are not an issue for this company.
$350
On a technical basis, I think a move above $350 on big volume will be start of a new leg higher. The stock is building a strong base at these levels and will serve as a great foundation for future gains. Valuations are certainly not a concern at about 13x forward estimates. No stock goes to the moon without some turbulence so hold on for the ride.
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