Ask a Fool: Why Are Apple, Inc. Analysts Wrong So Much?

In this installment of "Ask a Fool," Fool contributor Steve Heller takes a question from Fool reader Joshua Geldert, who writes:

Are there specific guidelines for companies when they issue guidance for the quarter or year? For example, the media constantly states that Apple (NASDAQ: AAPL  ) low-balls their guidance. How do they come up with this number in the first place? Are there specific guidelines for analysts as well, which is the reason why analysts are wrong the majority of the time?

In the following video, Steve goes on to explain how Apple issues its own guidance by looking internally and making projections based on previous results while also factoring in new products and variables. On the analyst side, a similar exercise is preformed, but the difference is that analysts don't have access to all the intricacies of Apple's books, leaving more of the estimation up to assumptions that could go awry. In the end, Steve gives Apple investors some advice on how to think its performance in a much simpler way than measuring its performance against its earnings guidance.

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Comments from our Foolish Readers

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  • Report this Comment On February 07, 2014, at 1:18 PM, alarmsmallhunch wrote:

    Perhaps the real question is "Why are the analysts who are consistently right on Apple never featured in the media?"

    http://tech.fortune.cnn.com/2014/01/28/apple-best-worst-q1-2...

  • Report this Comment On February 07, 2014, at 2:23 PM, ScottAtlanta wrote:

    Analysts are just another source of info. They can call attention to issues the corp. doesn't want to talk about but more likely , simply collude with the current group think about a stock. For example...research shows that analysts rarely issue "sell" recommendations until after the obvious damage is done. Price targets get raised frequently after the stock is already trading for higher amounts in the market.

    DDD's a good recent example. they're maintaining price targets at multiples of 200 times earnings. They didn't raise those PTs until after stock had run up. They didn't issue sell orders even when the stock plummeted from 96 to 54. You have to decide about DDD strategy....your investment strategy, trends, etc.

    So....take the info. with a big grain of salt. Look at trends and solid companies with innovative products and/or hx/o innovation to guide your decision. After all, if it's a good company....it'll likely pull thru any downturn. Growth stocks, can be included here. I own DDD and recently purchased AVAV b/c the company has a long hx/o of cutting edge innovation from one platform to the next and is sitting on the cusp of the likely trend of increasing drone usage for many applications. So when it triples...I'll have $90.

  • Report this Comment On February 07, 2014, at 3:06 PM, prl99 wrote:

    @alarmsmallhunch In my opinion, the analysts who are consistently wrong, in other words guess wrong when dealing with Apple's quarterly results are those analysts who continually attempt to manipulate AAPL. They push for higher earnings yet bet on lower ones so their shorts work for them. Apple tries to give a conservative estimate on their earnings and almost always meets or exceeds it. This is good business but doesn't fit the ridiculous earning estimate calculations of many analysts. Analysts base their estimates on bogus reports by others trying to manipulate the stock market. Apple had a great quarter, their best revenue and profit ever, and now own the 4th, 5th, and 6th highest ever of any company. Of course, some analysts didn't think this was enough so they caused AAPL to crash. These analysts should lose any license they have and be barred from reporting anything.

  • Report this Comment On February 07, 2014, at 3:15 PM, 8martini8 wrote:

    Most 'analysts' are more rightly described as bloggers. Bloggers are "paid" per-eyeball (whether in terms of $ or in terms of attention). So there is incentive to be outlandish, contrarian, and provocative. In the case of Apple, that means either (a) the stock is going to $1000 by the end of the year or (b) Apple is the new Blackberry. The truth is in the boring middle: Apple is a rock-solid investment but you just have to be patient.

  • Report this Comment On February 07, 2014, at 4:25 PM, Risky88 wrote:

    Thanks a lot guys!

  • Report this Comment On February 08, 2014, at 8:58 AM, tcolgcedu wrote:

    Excellent article and comments! Just a couple of years ago Apple (on a quarterly conference call with Tim Cook and the CFO) stated that they were going to try to be more accurate with their forecasts in the future. It seems apparent that most analysts paid little or no attention to this. Shortly after that time, Apple started to report a range for their future guidance. This does not matter to the analysts, who still expect Apple to blow past guidance by 20% or more or view this as a "failure" on Apple's part. When have analysts ever come out to explain why they "missed" with their prognostications. Instead, they simply keep raising forecasts (e.g., raising estimates of iPhone sales from 50 to 55 milllion based on "checks" from Asian suppliers). When the analysts are wrong, it is Apple who is blamed and treated like a failure. Ironically, other technology companies can miss on earnings and miss on revenues, yet their stock prices rise.

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