What Could Drive Apple Down to $400?

Not long ago, Apple's (NASDAQ: AAPL  ) surge led market pundits to wonder whether it could hit $1,000 per share. In a past video, Eric Bleeker looked at forces that could drive the company to $800 a share, and today, as a balanced look at the company, he also examines the bear case: what could move Apple to $400 per share.

At $400, Apple would trade at about nine times today's earnings. However, that ratio would fall back to less than six times earnings after factoring in Apple's expected cash gains this quarter.

That kind of continuing P/E contraction seems unlikely, with Apple continuing to grow. However, with Apple expected to post negative earnings this holiday season, there is a scenario to be considered where falling iPhone pricing causes negative earnings growth across next year. Anytime a major tech company appears to be falling behind, such single-digit P/E multiples aren't uncommon -- just look at Intel, today trading at a similar multiple. Intel's a dominant company, but it's also seeing negative revenue growth, and investors fear it's falling behind in key areas.

That doesn't mean Apple will fall back to $400 or see a single-digit P/E, but its important for Apple investors to understand the threats ahead. To see Eric's full thoughts on the Apple bear case, make sure to watch the video.

What's inside Supernova?
While Apple might be falling in recent months, the past decade has been one of stunning success for the company. Apple has been a longtime selection of Motley Fool co-founder David Gardner, helping lead his stock picks to gains of more than 113% in our Stock Advisor service since it launched in 2002. Those returns have beaten the market by more than 87%. David has managed to trounce the market by always being on the lookout for revolutionary stocks and recommending them before Wall Street catches on to their disruptive potential. If you're interested in how David discovers his winners, click here to get instant access to a personal tour behind David's Supernova service.


Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 01, 2013, at 2:23 PM, bbrriilliiaanntt wrote:

    AAPL forward P/E x cash is 7, while INTC is 10.5

    Even in your worst case scenario, where AAPL becomes INTC, AAPL is still trading at a 30%+ discount to INTC shares.

    There are many risks, sure, for any company that has existed in history - There are market forces - Supplier, Consumer, New Entrants, Substitute Products, and obviously Direct Competitors.

    However, from a risk/reward valuation model. AAPL is the surest thing out there. Dollar-cost averaging in if it goes lower, no hesitation…

    Thank You for your article!

  • Report this Comment On January 01, 2013, at 2:39 PM, EquityBull wrote:

    Only way apple falls to 400 is if they split the stock

  • Report this Comment On January 01, 2013, at 3:34 PM, applefan1 wrote:

    Here's the problem I see with comparing to Intel or Microsoft.

    Intel has over 4 Billion Shares, Microsoft has over 8 Billion shares and Apple has less than 1 Billion, so Apple is far less diluted.

    Apple could easily do a 2 for 1 stock split if they wanted to, and they would still be less diluted than INTC or MSFT.

    I think Apple is still gaining market share in the desktop/laptop market, iPads seem to still be in their high growth rate as does the iPhone.

    If Apple releases an actual TV product and it's a product that sees tremendous sales in the first year with a hefty growth rate, then Apple will EASILY move higher. If they announce a more feature rich Apple TV product that proves to be successful, they could move higher, but maybe not as fast since it wouldn't make as much profit as compared to a HD TV.

    What other things could Apple be working on to maintain their current status? They have Fingerprint ID technology, which they are working on. They could be doing more with automakers, which we won't know anything until they make some announcements, but that's always a possibility.

    I know it's difficult for ANY company to have such growth rate as Apple and to be able to continue that growth rate more more than 10 years. But if you look at it this way. Microsoft Windows users aren't real thrilled with Windows 8. If the surveys are correct, Apple could easily double their current install base if 12% of the current Windows users switched to OS X computers in the next 12 months.

    I would bet that Apple is going to maintain at minimum 25% to 35% year to year overall growth rate as far as earnings are concerned.

    The Android platform is STILL resting on last quarter sales, but when the December quarter sales emerge, we'll find that Apple caught up, and with both T-Mobile coming on board this quarter and China Mobile is inevitable, we'll see drastic sales increases for '13 aside from anything unexpected.

  • Report this Comment On January 01, 2013, at 10:27 PM, alboy5 wrote:

    Aapl sold by hedge funds to take profit before Obamacare does.

    Now hedge funds will buy back in to make easy money.

    It is much more likely aapl will see 650 before seeing 400.

    If aapl splits aapl will quickly double in value.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2174241, ~/Articles/ArticleHandler.aspx, 9/2/2014 5:16:22 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement