Apple (NASDAQ:AAPL) shares hit $419 just as the trading day was coming to a close yesterday. It didn't necessarily feel historic, but it was a fresh 52-week low for the company.
The line starts here at calling that a bottom.
Oh, I know. It's brazen but stupid to call a fresh low a sticky one. Apple's been a falling steak knife, and yesterday afternoon's nadir didn't come with a thud sound to indicate that the world's most valuable consumer tech company had, in fact, bottomed out.
However, if you don't go out on a limb from time to time, you'll never leave the tree house.
Let's go over a few reasons why this may be as bad as it gets for Apple.
1. Falling margins aren't the end of the world
Margins on the current iOS product categories may never be this high again. Bears have been arguing this for months, and I agree. All roads to challenging the runaway success that Google (NASDAQ:GOOGL) is having with Android involve lower price points to compete with the open-source juggernaut.
However, the "Apple will make it up in volume" bullish counter shouldn't trigger chuckles. It's real. Apple may not make as much off every iPhone and iPad in the future, but moves to expand its presence in overseas markets where smartphones aren't heavily subsidized will pay off in sum.
Pessimistic analysts have been shaving Apple's profit projections lately. The same pros that saw Apple earning $49.33 a share this fiscal year three months ago are now huddling around an average of $44.56 a share. That's sad, but it's still marginal growth for the fiscal year ending in September. A mere 1% in earnings-per-share growth against a 17% projected pop in revenue is a clear sign of contracting margins, but it's still growth.
2. Apple is still growing in popularity
Apart from the margin hiccup that will likely culminate in an unwelcome drop in profitability this current quarter, what does it tell you if Wall Street still sees revenue climbing at a 17% clip this year and another 13% come fiscal 2014?
Consumers -- most probably thinking that gross margin is what happens when you leave butter substitute on the table for too long -- are still flocking to Apple products. They're not concerned with how much or how little Apple is making off of every Mac or iPod. They just want it.
The market's been ignoring that lately. Shares of BlackBerry (NYSE:BB) have more than doubled since bottoming out in September, which just happens to be when Apple's stock peaked.
Fundamentally speaking, Apple is coming off record net revenue and earnings in its holiday quarter. BlackBerry is going in the opposite direction. The hype for BlackBerry 10 has been fizzling out. The latest headlines find overseas retailers slashing prices as notable app developers are hesitant to back the operating system. The new smartphones haven't even hit the stateside market, but the tide is already turning against the pioneer.
Apple doesn't have that problem.
3. Apple has never been this cheap
Profit targets have come down, but not as far as Apple's share price.
Apple at $419 is trading at just 9.4 times this year's projected profitability and a mere 8.3 times next year's target. Back out Apple's $137.1 billion in cash and marketable securities and those multiples drop even lower, and that's even if you back out repatriation taxes for the money stashed away overseas.
Tech laggards aren't trading this cheap. Why should Apple be here?
Even Microsoft -- a company that has actually been more hurt by Android's mainstream success than Apple -- is trading at higher forward multiples than the class act of Cupertino.
4. Don't underestimate the power of buybacks
It's been a year since Apple turned heads by committing $45 billion in domestic cash over the next three years to dividends and share repurchases.
Investors have benefited from the quarterly payouts, and the falling stock price provides a bank-busting 2.5% yield now. However, they haven't really been treated to the buyback benefits.
Aggressive repurchases can not only help support a share price but prop up earnings on a per-share basis. Just check out GameStop (NYSE:GME). The video game retailer has been able to mask its store-level weakness through buybacks. GameStop has lowered its comps guidance four times over the past year, but its earnings guidance has remained intact on a per-share basis as a result of ambitious buybacks.
Apple doesn't have anything to mask, yet, but buybacks may be the ticket to reverse the unwelcome trend where Apple has come up short on the bottom line in three of the past five quarters.
5. But there's one more thing
CEO Tim Cook naturally lacks the showmanship chops of Steve Jobs. There's a void missing in Apple presentations when Jobs would stop -- freezing the crowd with "but there's one more thing" -- and raise the bar on innovation.
However, we all know that Apple is working on new stuff. There are too many reports surfacing on Apple wristwatches, streaming music services, and full-blown HDTVs. Oh, and that's the stuff that's being leaked.
Who knows if Apple isn't going to beat Google to wearable iSpecs, revolutionize the cable industry with a la carte programming, or put out a product that may not seem necessary at first (think iPad) but proves indispensible in short order?
If you believe that innovation at Apple perished alongside Jobs, then you have every reason to dump Apple at this week's lows. Just don't be surprised when the next iGadget excites the market, rallies the stock, and brings on seller's remorse.