Apple Stock: It Gets Worse

Apple's (NASDAQ: AAPL  ) stock has been bouncing back big time since last month's uninspiring quarterly report.

Shares of the consumer tech giant have soared 13% in the past seven trading days through yesterday's close.

It may seem strange. Apple's stock chart and its fundamentals appear to be passing ships. Analysts are whittling away their profit estimates on the company just as the stock is showing signs of bottoming out.

As one can imagine, Wall Street's profit targets have come down even more since last week's disappointing guidance. The outlook may have been merely for the current quarter, but the pros have been talking down Apple's bottom-line prospects all the way out to fiscal 2014.

It's pretty grim.

Let's see where analysts were perched in recent months.

 Date

2013 EPS

2014 EPS

120 days ago

$48.81

$57.35

90 days ago

$44.72

$50.92

60 days ago

$44.59

$50.51

30 days ago

$44.12

$49.79

Now

$39.97

$44.24

 Source: Yahoo! Finance.

Most online sources only go out to three months, but I had already done this exercise last month so I can travel back four months to see how swift the revisions have come through two unsettling quarterly reports.

Apple stock, lock, and barrel
Yes, Apple has taken a hit over the past four months. Shares of the company have fallen 17% in 2013. However, in that time we've seen Wall Street's profit targets decline by 18% for fiscal 2013 and 23% for fiscal 2014.

In other words, Apple stock isn't necessarily cheaper. In fact, its forward earnings multiple has expanded even as its share price has retreated.

This isn't some widespread tech epidemic.

Google (NASDAQ: GOOGL  ) -- the company that is the most responsible for Apple's contracting margins given the success of its Android mobile operating platform -- isn't attracting backpedalling prognosticators. Wall Street's profit target on Google for 2013 has grown from $45.68 a share to $46.12 a share over the past three months.

Interesting factoid: Four months ago, Apple was expected to earn more than Google on a per-share basis this year. That's no longer the case.

Another interesting factoid: The $44.24 a share that Wall Street sees Apple earning in fiscal 2014 is nearly flat with the $44.15 a share it earned two years earlier.

The silver lining in all of this is that Apple is cheap. The math on the multiples relative to its share price actually shifts in favor of the bullish camp if we back out Apple's ample cash reserves. The rub is simply that we don't know when Apple's gross margin will bottom out. The company has already braced investors for another quarter of declining gross margin.

Analyst targets have also yet to bottom out. However, it's certainly possible that Apple stock did exactly that late last month. Apple now just needs to give investors a catalyst to do more than simply bounce the stock higher.

There's no doubt that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with over 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on 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 (21) | Recommend This Article (32)

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 May 01, 2013, at 8:05 PM, larryw101 wrote:

    This is the most "foolish" article I have ever read regarding Apple. It takes out of context one small technical perspective and completely ignores the rest of Apple's story and fundamentals. I thought Motley Fool would do a better job at reviewing these articles before releasing them.

    This author sure likes to look at investments with tunnel vision. If you only focused one one negative of a security and labeled it as "gets worse" there would not out there worth to invest in.

    I will be sure to put this author my "not worth reading list".

  • Report this Comment On May 01, 2013, at 8:46 PM, AlJebra wrote:

    You point out that Apple's earnings estimates for 2013 are now at 39.97, and Google's are at 46.12.

    So Google is expected to earn 15% more than Apple this year.

    So should Apple's stock price increase to $713 in order for Google to trade 15% higher?

    Or should Google trade down to $505 so it trades 15% above where Apple currently trades?

    I'm long Apple and short Google, so any combination that corrects the mispricing pointed out in your article would suffice.

  • Report this Comment On May 01, 2013, at 8:55 PM, rgardner101 wrote:

    Who cares what the analysts say, but now instead of Apple doing low ball I guess they feel the need to do the same.

  • Report this Comment On May 01, 2013, at 9:02 PM, LADJ wrote:

    The analysts haven't gotten Apple numbers write yet this Millenium. If people would pay more attention to Apple's stellar revenues and industry leading margins the stock price would be in the 600 or 700s where it belongs.

  • Report this Comment On May 02, 2013, at 2:09 PM, FoolishLonghorn wrote:

    We all know that all these analysts and experts always predict the future with accuracy.

    I agree with other posters. This article is the sort of fluff I would expect to find on CNN or USA Today.

    And I am no Apple fan boy. Apple may or may not go down from here, but to use 3 months of analysts earning predictions is ridiculous. One might as well use a Magic 8-ball or a Ouija board.

  • Report this Comment On May 02, 2013, at 5:48 PM, TheDumbMoney wrote:

    To justify the price you basically have to assume multiple years or declining revenues and earnings in the 5% range per year, plus (related) major continued margin contraction during that time. So it becomes purely a qualitative analysis of whether one thinks that is going to happen or not.

  • Report this Comment On May 02, 2013, at 6:13 PM, digndig wrote:

    If I look at aapl's climb over the last month I could envision a climb to $600 before the end of the year plateauing at 15x earnings, assuming aapl does nothing interesting in the future.

  • Report this Comment On May 02, 2013, at 6:16 PM, alan0101 wrote:

    How long can we go on reading these really half witted articles on Apple. The only problem Apple has, is how to manage its pile of billions. Of course, since Apple doesn't comment on expectations, rumors, innuendo and other BS "pundits" have a field day. Pay attention: Apple is not in the expectations game, they are about running a business long term, sort of like Buffet. Can you give us a break with the idiotic, not Foolish, articles?

  • Report this Comment On May 02, 2013, at 6:37 PM, Guiriguao wrote:

    Agree with all previous comments. In addition, what is the present value of the decisions to the increases in dividends and share-repurchase programs ? This guy has been on vacations for the last Q

  • Report this Comment On May 02, 2013, at 6:38 PM, TempoAllegro wrote:

    I think some interesting facts about the share price and earnings of Apple were pointed out in the article. For example, odd that shares have fallen 17% in 2013 and Wall Street profit targets have fallen by 18% in the same time frame.

    It takes courage to write anything about Apple these days! Almost no matter what you write, you are going to get whacked.

    This was a free article - take it and stop your complaining. If you want more on Apple from the Fool, join one of the services at the site that recommends Apple, or buy the research report offered at the end of the article.

  • Report this Comment On May 02, 2013, at 6:55 PM, driller101 wrote:

    So, to get an article or paper worth reading, you need to spend some money?

    Would the conclusions be different?

  • Report this Comment On May 02, 2013, at 7:23 PM, tkell31 wrote:

    Anyone who didnt factor in Apple's decreased EPS for 2013 the second they released guidance in January is too stupid to invest their own money. Granted I didnt put an exact number on it, but it was clearly going to be in the 39-40 range give or take a quarter.

    Obviously the trick is figuring out where from here. The next 12 months should map out the future for Apple, if Cook can be believed it's a screaming buy. Since he's little more than a bobble head proclaiming everything is great it's not that simple.

    My suggestion is if you are in Apple hold it, if you aren't you can sell puts if must have an interest in the position otherwise get ready for the next earnings release. Look for the buyback figures. If they frontloaded the buybacks heavily like you would expect if what Cook is saying is true I would use that as a signal to take a position. If they are at or below what the average would be I would take that as a sign that things are not as rosy as the Crookster claims. FYI they have 58 billion over 32 months or about 1.8 billion a month. Do the math, but buybacks in the 10 billion+ range between now and next quarter would be a strong buy sign. 5.4 billion or less and I would really question if the products to be released all across 2014 are remotely as strong as Cook implied in April.

    Overly simplistic? Maybe. I guess the other driver could be if guidance is going to be really bad for the next quarter that might represent a better buying opportunity, but hey, even if they spent 10 billion that would still leave 48 billion.

    Best of luck

  • Report this Comment On May 02, 2013, at 8:24 PM, OracleofOmahaha wrote:

    There is nothing new or interesting about this article. Just a ridiculous title to try to grab attention. This article may be free to read but that is even more than this information is worth. As a paying subscriber, Motlley Fool needs to do a better job screening these articles before they put their name on them.

  • Report this Comment On May 02, 2013, at 10:15 PM, BlackberryIsKing wrote:

    Apple is not a stock worth buying now. Way way way more downside than upside. It's going up now based on nothing more than the recipients of the dividend selling. Soon it will fall again, back to sub $400 levels, then sub $300 where it belongs. Apple has nothing of any value any more. The best company to buy now is Blackberry, as they have a future in the mobile industry. Apple does not. Long Blackberry, and now is a great time to short Apple. Apple is done, stick a fork in them.

  • Report this Comment On May 02, 2013, at 10:48 PM, KenInNH wrote:

    All it will take is one good new product, such as Apple TV II, and the market will forget about all this nonsense and the stock will soar again. Patience is needed at the moment.

  • Report this Comment On May 03, 2013, at 12:04 AM, BlackberryIsKing wrote:

    Nothing Apple does now will matter. People are starting to realize that Apple's products are not that great, they are just marketed very well. Apple is a spin company. Apple TV? Waste of money. Apple iWatch? A joke. Apple stock is a sub $300 stock, no matter what they put out. Apple's time is done. Finished. History.

  • Report this Comment On May 03, 2013, at 9:11 AM, wrknmywayup wrote:

    Don't forget, Apple is a complany making an operating profit of at or nearly 1 BILLION dollars a week!

  • Report this Comment On May 03, 2013, at 10:49 AM, cfpeterson wrote:

    This makes me wonder why I pay these Fools for their "news."

    "Buy!"

    "No, for God's sake, don't buy!"

    "The Apple sky really is falling...."

    NO renewal for me in November - this is too crazy!

  • Report this Comment On May 03, 2013, at 12:17 PM, marcfool100 wrote:

    remember, you can actually cancel the subscription at any time.

  • Report this Comment On May 03, 2013, at 2:03 PM, mikecart1 wrote:

    That chart is exactly what you want if you are an Apple shareholder. Lowered expectations usually result in bigger positive surprises which causes stocks to go up.

    Why would a shareholder want estimates to be sky high for a year from now if they currently have shares of that company?

  • Report this Comment On May 04, 2013, at 1:12 AM, dsciola wrote:

    In my opinion, analysts lowering estimates is GOOD for apples stock prioce....its previously lofty expectations and failure to meet them is what drove the stock price down back to earth, irregardless of 'fundamentals' or low p/e's or any other traditional valuation metrics...

    gross margin will be the main concern going fwd as it was b4 and has fueled most of the sell off as well, imo...

    finally, I dont think we can back out cash anymore to value AAPL...since they just issued debt to fund the buy-backs and dividends, that tellls me their cash hoarde that rivals most the Eurozone will be sitting right where it is overseas...lest they wanna pay some fat re-patriation taxes...perhaps they can plow it bakc into Foxconn or other foreign operations?

    Will have to wait n see...

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