Did Apple Inc Earn This 52-Week High?

Apple (NASDAQ: AAPL  ) is popular again. Apple stock closed above $600 for the first time since late 2012 yesterday, naturally notching a new 52-week high. The gains were extended during the trading day this morning before slipping back below the $600 milestone. You have to go all the way back to October 2012 -- 19 months ago -- to find the last time that Apple stock has traded as high as it did this morning.

Bulls will argue that the pop is long overdue. After a slump through most of 2013, where earnings and profit margins buckled, Apple responded with a blowout quarter two weeks ago. Margins widened and profitability improved. Apple's profit of $11.62 a share was well ahead of the $10.09 a share that it earned a year earlier and the $10.18 that analysts were targeting.

However, lost in the post-report rally is that Apple is still being challenged. Net sales climbed a mere 4.6% worldwide, and it was a more humbling 1.8% uptick in the Americas. That's barely enough to stay ahead of inflation's 1.5% rate for the 12 months through the end of March.

Apple is doing well in Japan. It's the only market where the iPhone commands a greater share of the smartphone market than in the U.S., and sales also grew nicely in Greater China. However, can we really hold up 1.8% growth in the Americas as a success?

The iPhone is doing well. Macs are holding their own in an otherwise-stagnant PC market. However, the double-digit decline in iPads is problematic. Apple reassured investors that the iPad plunge wasn't as bad as it looked on paper. The 13% drop in sales and 16% decline in units wasn't indicative of the actual sell-through to consumers. As Apple explained during its call, it may have sold 16.4 million iPads to retailers, but folks actually purchased 17.5 million units. Its channel inventory decreased by 1.1 million units to a more normal level. That certainly takes some of the sting out of the iPad shortfall, but it also suggests that the holiday quarter -- Apple's fiscal first quarter -- wasn't as hot as the increase in iPads suggests if retailers had excess inventory to taper new orders. Either way, it was still a year-over-year decline.

The market's cheering Apple's decision to split its shares 7-for-1 early next month, but that's clearly a zero-sum game. It's cheering Apple's aggressive share buybacks, but all that means is that the 15% growth in earnings per share this past quarter was actually just a 7% step up in net income. Outside of the 17% pop in iPhones, is there really any other reason to get excited about Apple?

The answer -- despite the occasionally negative tone of this article -- is in the affirmative. Apple at $600 isn't outrageous. It's less than 14 times this year's earnings forecast and less than 13 times next year's target. That may not have seemed like a bargain when margins, earnings, and even sales were going south, but it's a different ballgame now. Apple is back in "trounce mode" and that's before it introduces one of the breakthrough products in new categories that it has been promising for months. May might prove to be a good month for Apple shareholders ahead of next month's stock split, but the real fireworks await later this year as the iPhone 6 and forays into new realms bear fruit.

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Comments from our Foolish Readers

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  • Report this Comment On May 06, 2014, at 1:51 PM, iphonerulez wrote:

    Did Netflix, Tesla, Facebook and Amazon earn their highs? What an odd question for a headline. Apple's P/E is lower and cash flow is higher than any of those stocks.

  • Report this Comment On May 06, 2014, at 2:20 PM, RussellL wrote:

    "Apple's P/E is lower and cash flow is higher than any of those stocks."

    Why do commenters think this determines stock price?

  • Report this Comment On May 06, 2014, at 2:27 PM, HappyEndingz wrote:

    If Net Sales climbed 1.8% in the Americas for the 3 month quarter ending March 2014 and inflation climbed 1.5% for the 12 months ending in March, I'd think the term 'resounding success' could be applied here, especially if beating the rate of inflation was somehow high on Apple's list of sales objectives.

    Though iPhone sales were up a mere 4.6% for the quarter, it would've been helpful to know at what rate total smartphone sales grew in the same time period. Just sayin'...

  • Report this Comment On May 06, 2014, at 2:44 PM, Techometer wrote:

    The answer is that IDC and others' numbers for tablet sales are simply incorrect.

    They're including a lot of low end products including netbooks in the "tablet" category in order artificially to inflate Android's tablet sales.

    The reality of course is that Amazon's tablet sales are horrid, as are Samsung's and Android's overall. Proof is the steady decline in profits of these companies over time.

    They may be *shipping loads of product, as Google did with its tablets and phone, but every time the truth eventually comes out that each of these products has been an utter sales flop.

    There is the answer -- only Apple is at least holding steady in the tablet sector, while every other manufacturer is... what is the correct financial analysts' term?.... oh yeah, sucking eggs.

  • Report this Comment On May 06, 2014, at 4:42 PM, CoreAndExplore wrote:

    "The market's cheering Apple's decision to split its shares 7-for-1 early next month, but that's clearly a zero-sum game. It's cheering Apple's aggressive share buybacks, but all that means is that the 15% growth in earnings per share this past quarter was actually just a 7% step up in net income. Outside of the 17% pop in iPhones, is there really any other reason to get excited about Apple?"

    You clearly need to separate the stock from the company. While the two are obviously related, AAPL can soar while the underlying company itself can grow modestly. Why? The company's HUGE cash hoard, sterling credit rating, and unmatched cash-flow. Buying back shares in buckets is a brilliant move for shareholders, and EPS is what really matters, not earnings, since I don't own the entire company only a share of it. If my share of earnings is growing at a high rate, then I'm willing to pay up for it, and you should be too.

  • Report this Comment On May 06, 2014, at 4:46 PM, icposse2k wrote:

    For years now the narrative has been that Android was going to eat Apple's lunch and the profitability of the iPhone and iPad franchises was going to decline due to the explosion of cheap Android devices.

    The reason Apple's stock has been on the rise lately is because it is becoming increasingly obvious that this is NOT happening. While Apple is losing marketshare at the low end to Android, they are maintaining and in some countries strengthening their grip on the high end (read: profitable) of the market. The iPhone was up 17% year over year while keeping high margins (esp. compared to Android). In the meantime, Samsung's high end galaxy phones are getting crushed by low-end Android phones. Similar results in the tablet business: iPads sales levels are essentially flat while keeping high margins while all competitors are getting brutalized. There is a reason Samsung is giving their tablets away with smartphone purchases: nobody is buying them on their own.

    That's my take anyway. The doom-and-gloom predicted by IDC and Strategy Analytics about Apple's declining marketshare is no longer able to obfuscate reality: that it's the high end Android phones and tablets that are getting killed, not Apple.

  • Report this Comment On May 06, 2014, at 6:53 PM, Morgana wrote:

    Take out the name Apple and judge all the comments everywhere in articles about this stock. Would any of the comments make sense with another stock name substituted? Hmmm.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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