The iPhone Gains in Popularity, Yet Apple Stock Falls

Apple's (NASDAQ: AAPL  ) stock currently trades around its 52-week low. The latest smartphone industry report shows that not only are smartphones being adopted at the second-highest rate ever in the U.S., but also that Apple actually gained 4% market share. Why is there such a disconnect between company performance and stock performance?

Investor sentiment
After being the biggest momentum stock of 2011, hitting a high around $700 per share, Apple hit a few speed bumps. Its new Maps application that replaced Google  (NASDAQ: GOOGL  ) Maps was heavily criticized as an inferior choice. The company ran into supply issues with the new iPhone 5, with shipping times between three and four weeks even two months after its launch. The latest earnings release showed flat profits, and as cost of sales outpaced sales, margins fell.

In an industry where a slight trip can lead to a disastrous fall in a few short years, such news spooked investors. Take BlackBerry (NASDAQ: BBRY  ) , for example. Blackberry once held 20% of the global smartphone market share in 2009, and in 2012 only claimed 5%. The seemingly unassailable position of Blackberry and its brand were quickly undone by its competition. Blackberry is attempting to regain its footing with a new OS and line of phones, and sold 1 million of its latest Z10 model last quarter, but the next quarter will tell whether it can keep up a sustainable pace of sales.

Additionally, the huge run up in share price of Apple's stock in 2012, when it had roughly 70% institutional ownership, would lead to a rebalancing of portfolios. And that, together with questionable news on Apple's future, meant that some institutions didn't want to be caught having Apple on their list of holdings. Institutional ownership is now around 64%. The stock is no longer the "in" thing to hold.

But is the future that bad?
Even with the few missteps, including the strange events that caused CEO Tim Cook to issue an apology to China, Apple continues to barrel ahead. But, the market is looking back on Apple stock's past poor performance and not giving it proper credit.

First, trading at a P/E of 9.6, it's roughly half the market's current overall valuation, yet offers a dividend yield of 2.5%.

Second, it remains the dominant force in a growing, future-oriented industry. Google's Android OS gained 17 million users over the past year, whereas the iPhone added over 20 million. Apple was able to steal 4% of U.S. market share in the quarter ending in February, with Google and Blackberry both losing about 2%. Apple's phones have not lost popularity, even though the stock has.

And the iPhone is just a piece of the Apple story, making up 51% of Apple's revenue last quarter. The iPad made up 20%, and Mac 10%. These products are best in class, which gives them higher pricing power even if the industries trend toward commoditization. Add in future product developments, and Apple deserves a higher valuation.

The one question, however, is whether or not the market will shake its negative feelings toward Apple. It's impossible to say if and when that could occur, but if investors are looking for a solid dividend in a solid company with a solid grip on the future, Apple is it.

For a more detailed look at whether Apple remains a buy, check out our new premium report. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (25) | Recommend This Article (9)

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 April 09, 2013, at 8:12 PM, TimKnows wrote:

    Stop using old data to pump this dog. Apple is dead, everyone has a better product now and Apple's ancient i OS is going to kill them. No wonder you Fools lose so much money on AAPL, you can't think past the old days. BlackBerry is selling 1/2 their phones to former Apple and Android drunks.

  • Report this Comment On April 09, 2013, at 8:25 PM, JT1951 wrote:

    TimKnowsNothings......

  • Report this Comment On April 09, 2013, at 8:27 PM, larryw101 wrote:

    TimKnows absolutely nothing. Tim is a shortie who wants to bash Apple for personal gain.

    Right Tim ??

  • Report this Comment On April 09, 2013, at 8:53 PM, Jjkiam wrote:

    When the market stops seeing Apple as a gadget company like Samsung and begins to realize that it's big data platform or ecosystem is really the major strength and future revenue driving area then the stock will take off in a major way! It isn't only about the device anymore. The future is a device's connection to a much bigger interface that improves communication, productivity and user satisfaction. Apple is investing billions in continuing to build out this kind of infrastructure. So along with continued gadget releases that are compelling, investors should be looking behind the curtain and asking themselves which company is preparing for this more than Apple. This is why user retention of Apple adopters is highest. This is why companies like Samsung, BBRY or Nokia will eventually lose. This dominant position is only growing stronger for Apple.

    What happens when just gaming revenues on IPads become so big that the market is finally forced to acknowledge this? This is why Apple has made a major push to infiltrate IOS into enterprise and specifically automotive. This future is now and no company is better positioned than Apple

  • Report this Comment On April 09, 2013, at 9:11 PM, Jjkiam wrote:

    To TimKnows this is the kind of uninformed biased and strange Apple hating response that basically has no basis in fact. If you really studied the specs of your vaunted new BBRY Z10 you would see a product that doesn't compete with even last years Galaxy S3 or IPhone 4S let alone the new models.

    BBRY has fired it's last bullets and unfortunately doesn't have the resources to truly compete in the future I described in my last post. Several question to ask. How much investment is BBRY making in data farms? Where is their ecosystem ? How much money in R&D does BBRY invest in product refreshment now that the new gadget cycle is @ 9 months or less ? And please don't talk about QNX as something new because it predates both IOS and Android.

  • Report this Comment On April 09, 2013, at 9:34 PM, tychicum wrote:

    "Why is there such a disconnect between company performance and stock performance?"

    Shitty analysts posting POS articles

  • Report this Comment On April 09, 2013, at 9:41 PM, banmate7 wrote:

    The author offers an unwitting indictment of Wall Street in stating that Apple's evaluation is driven sentiment. If only it were so innocuous. Smart money all too well knows how to create sentiment that leverages people's irrationality. As usual, the "fools" panic when they hear negative sentiment, or become irrationally exuberant when they hear positive sentiment.

    Consequently, most investors buy high and sell low, whilst the smart money does the opposite. This kind of irrationality explains why Apple has a PE of 9, but SalesForce with no profits has sky high valuations. Suffice it to say, even a large cap like Apple is susceptible to this short term market manipulation.

    But make no mistake about it, the markets will correct themselves. They always do. Short of an act of god, Apple will come back to fair evaluations.

    If you are a value investor, this is an opportunity. If you are not, don't invest in anything but dollar cost averaged index funds. Don't give your money to an actively managed fund that obeys the market making of smart money...costing you good returns, effectively executing wealth transfer from you to the smart money.

  • Report this Comment On April 09, 2013, at 10:16 PM, DanManners wrote:

    The problem with Apple is Tim Cook. If you want the stock to rally, you have to fire this person immediately. He has to be the worst CEO that Apple could ever have. Bring back Scully. Bring back anyone but this guy. Rocco Pendola from the Street.com screamed for his firing.

    No new iphone just a slightly improved iphone5.

    No significant dividend or buyback increase

    No bigger screen

    No cheaper phone for developing nations

    No deal with China Mobile.

    China is going downhill as Apple had to appologize.

    No iTV

    No iWatch

    5 billion cost for new campus. Could have bought half of netflix

    More competition and no strategy

    Failing advertising and marketing

    Bad employees, Ron Johnson, Scott Forstall etc etc including Tim Cook

    No Steve Jobs anymore

    No innovation

    No nothing but we will have a lower stock price and Tim Cook feeling my pain.

    Tim Cook needs to go now. He is evil in that he refuses to acknowledge the shareholder and who he is working for.

    Let me repeat! Cook will see this stock at 300 soon.

    Also 4 of 5 earnings will be a miss. Yeah they could lower estimates so much they cant help but beat.

    But a p/e of 9 something and excash a p/e of 5 something.

    All the people who lost money believing. Cook laughs at you. he despises you. He steals from the Chinese. He makes a 5 billion dollar center so he can have his thone and castle.

    He has got to go right now. Apple will never go up with him there. Analysts know he is a disaster. Arrogant and foolish.

    Tim Cook has to go. Did you get the message yet.

  • Report this Comment On April 09, 2013, at 10:22 PM, DanManners wrote:

    In response to banmate7 Apple will never come back.. They could make $ 100 eps and the stock will just get a lower multiple.. That is because everyone thinks it is the last time they do well. Law of large numbers. They could have 500 billion in cash and a stock price of $ 100 and they could do buybacks and the stock will just get a lower multiple and not move up. They could invent a time machine and the cure for cancer and the stock will keep dropping.

    And if they find a cure for cancer and you need a 20mg pill to cure it, Cook will put out a 10mg pill and say that size is the size we like as everyone dies.

    Cook is an arrogant CEO and will do whatever he can to drive the price down. Apple will be under 200 next year and the next Blackberry/Nokia.

  • Report this Comment On April 09, 2013, at 10:47 PM, garysund wrote:

    I know there are quite a few apple bashers out there. Yes at the moment apple stock has taken a major beating. If you bought in when it had its run up and are still holding you are upset and mad as hell. But we have seen this happen to many other great stocks in the past. If you are a owner you are in pain. Then something happens and this dog stock you own from a great company takes off like gangbusters and makes you a great profit. Apple is a one of a kind company. Great products and great profits. They will continue to do this and the profits will continue to come in and grow. It would not matter if one day they were really a trillion dollar company. There will still be basher and people who hate Apple. But if I were a long term investor I would have deaf ears to all of the bashers and buy right now. Buy as much as you can afford. In a very short period of time you will be much richer.

  • Report this Comment On April 09, 2013, at 11:01 PM, tychicum wrote:

    Danmattters ... you are hilarious.The day Tim Cook took over Apple closed at $374 per share. It now trades for $50 more.

    What is the issue again?

    Just quit smoking that stuff ... it will turn your brains to spaghetti.

  • Report this Comment On April 09, 2013, at 11:07 PM, tychicum wrote:

    The one thing I do have to say about Samsung is that they make a GREAT toilet seat.

    The new SAMSUNG SBD-970C Dynamic Digital Bidet Toilet Seat + Remote Control

    Yes you got it right REMOTE CONTROL.

    King Dung Un has one so should you!!!!

  • Report this Comment On April 09, 2013, at 11:22 PM, banmate7 wrote:

    Dan, I obviously disagree. I will stick to time trusted value investing principles. I just don't see why Apple would be a negative exception to what I have experienced in 25 years of personal investing. Never mind academic corroboration.

    Yes, I could be wrong. But as in all things in life, this is statistical. I think my long bet is the more likely outcome, as opposed to Apple never experiencing fair valuations again.

  • Report this Comment On April 09, 2013, at 11:34 PM, TimKnows wrote:

    It doesn't matter how much you cheerlead Apple, you are still going to continue to lose your money. If you are okay with that, fine. I dumped my iPhone 4S and went with the better Z10 from BlackBerry, but long before that, I knew AAPL wasn't for me when I looked at their replacement, the iPhone 5. As soon as I realized they only added another row of icons, I shorted the stock. It stands to reason that if you think management sucks at one company, you might find value in another. And so I came up with the pairs trade of BlackBerry versus AAPL.

    Again, you can dream of better days for AAPL, or, like me, get rich doing the right thing. AAPL can still return one day but it isn't going to happen until management cleans up their act and produces innovative products again. They stopped innovating with iPhone 4, after that product came out, they began telling the consumer what they will like. Let's see if they have learned anything from their mistakes, if they get hungry again, I will buy the stock, for now, it is just another short trade hitting yet another 52 week low. Too bad some of you have to learn this lesson.

  • Report this Comment On April 09, 2013, at 11:45 PM, TimKnows wrote:

    Larryw101 - i make money by correctly predicting the movement of various investments. It is highly unlikely that you, or anyone else on this board are worth my time head hunting for scrap money. You need to sit back and look at what management isn't doing right here, when outsiders have to sue them to get action, and still there is zero response, you have a very disfunctional company here. I'm in this to make money and no one pays me to write or cheerlead companies.

  • Report this Comment On April 10, 2013, at 12:25 AM, Rockthebest wrote:

    Isn't obvious people ? Apple has lost it magic touch. I sold my shares at $500.

    I will probably buy new shares when Apple shares bottom at $350. From there I can see it go up.

    2 cents worth.

  • Report this Comment On April 10, 2013, at 12:34 AM, Rockthebest wrote:

    @infothatsuck. U have never written anything that made sense. Why should anyone listen to your crap.

    How much Apple shares u buy? Lol

    If you not willing to accept the risks don't go out bragging about a stock that has lost its face value.

    China will not be Apple biggest client in a year or two. Apple already stated losing in the east.

    Apple apologized to China.

  • Report this Comment On April 10, 2013, at 12:43 AM, Rockthebest wrote:

    @infothatsuck I can easily tell by how u write that you bought a s load of apple shares and didn't sell. Now u r just losing money on apple.

    I can also tell you shorted Blackberry on the way down and the stock only going up ever since. Again u are losing money in both scenarios. For your future reference don't make it your personal agenda to praise apple and bash BBRY. It doest work.

    Learn the market and move on.

  • Report this Comment On April 10, 2013, at 12:53 AM, Rockthebest wrote:

    Good then, go out more. May be this will help you. Don't call people idiots before you look in the mirror.

  • Report this Comment On April 10, 2013, at 2:10 AM, banmate7 wrote:

    Come on folks. Apple is an iconic brand. They have an ecosystem of mobile and cloud enabled devices across a rich set of media and applications. Cash flow & balance sheets are superb. The PE is cheap. This passes the eyeball test.

    The market will normalize to a fair valuation for Apple. As I've experienced with nearly all my value investments, it's just a matter of time. I will keep reinvesting dividends.

    Just to be clear, I am averaged in at around $300 a share.

  • Report this Comment On April 10, 2013, at 2:26 AM, yaovk wrote:

    The stock market is rigged and it has nothing to do with fundamentals. The hedge funds are exploiting politically between Microsoft, Apple and Goggle (stock owners loyalty) . The end is they profit.

  • Report this Comment On April 10, 2013, at 11:37 AM, banmate7 wrote:

    @InfoThatHelp

    The history of Apple suggests that it will continue to be a productive, innovative, and profitable company. Investing history suggests that Apple is a cheap stock right now and that eventually will be fairly valued again. History also suggests Apple will beat market indexes. In other words, the management is proven and Apple is a good bet.

    The rest is noise...particularly statements like yours that ultimately amount to sentiment analysis. This might matter in speculative short term trading, but over time fundamentals win.

    Best of luck here.

  • Report this Comment On April 10, 2013, at 3:35 PM, BlackBerryGreat wrote:

    Apple is dying, Blackberry is growing. Apple is toast, Blackberry is the future. Sorry InfoThatIsStupid, but the truth hurts.

    @InfoThatHelp: You are a total moron. Everyone is laughing at you. The reality is, Blackberry is destined for greatness, and Apple is going away. The Z10 IS BY FAR THE BEST PHONE AROUND. It blows away the iToy, and the S4. You know nothing about technology. You have absolutely no clue at all. Everyone comments on how stupid you are. It's no wonder you are unemployed. No one wants to hire an imbecile like you. You have no friends, no job, no life, no future. Give it up and go away. You are not wanted here or anywhere loser!! Blackberry will be at $100 within a year, and I will be even richer than I am know. And you will still be broke. LOLOL

  • Report this Comment On April 10, 2013, at 3:37 PM, BlackBerryGreat wrote:

    @InfoThatHelp: I really really really hope you bought Apple at $700. I am laughing at you right now. The longer you hold on, the more you will lose, and the happier I will be. Laughing at you. Ooooops. Just fell off my chair laughing at how much money you are losing. Hilarious!!! You are as stupid as they come. No understanding of tech at all. My 5 year old niece knows more about tech than you do, you loser!! Lolololololol.......

  • Report this Comment On April 29, 2013, at 2:23 PM, banmate7 wrote:

    A lot of vitriol was written here the past month. Well, today Apple is relatively up, at $432 a share. It still has a PE of 10. Same great balance sheets and cash flow.

    I'm averaged in at $300, so I'm up 38%. Not bad for 18 months or so.

    As I said before, I'm holding, exactly because the fundamentals are excellent. I'm holding my positions in companies like Microsoft, Coca-Cola, Johnson & Johnson, Intel, and Corning...all which I bought on value investing imperatives.

    Time will tell, but something tells me value investing will prove fortuitous here...over sentiment analysis...in the long run.

    Best of luck all.

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