Please ensure Javascript is enabled for purposes of website accessibility

Can Apple Stay Above $400?

By Doug Ehrman - Apr 24, 2013 at 11:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Apple's struggles have continued, but are they finally reversing?

After three consecutive closes below the psychologically important $400 level, Apple (AAPL -1.07%) managed to climb higher during Tuesday's session to close at $406.13. Apple's stock has been falling since it crossed $700 last fall, and recent operating results are not helping matters. While the company announced that it will speed up the clip at which it returns cash to investors, it is not doing so at the rate many had hoped to see from Cupertino. The question now becomes whether Apple has put the bad news behind it and can grow from here or if things are really beginning to look grim. While news of a slower-than-expected release schedule is not good news for shareholders, at current levels the stock is attractive.

Earnings results
CEO Tim Cook was unusually candid about the tepid nature of Apple's latest operating results: "Though we've achieved a credible scale and financial success, we acknowledge that our growth rate has slowed and our margins have decreased from the exceptionally high level we experienced in 2012." For the second fiscal quarter, Apple saw profits fall by 18% even with an 11% rise in revenue. Reduced analyst expectations had the company earning $10 per share; Apple reported EPS of $10.09 relative to $12.30 a year earlier.

Other news
As a part of the release, the company also announced that it was accelerating the rate at which it returns money to investors. The dividend will be increased by 15% to $3.05 per quarter and a stock repurchase program will be put in place as well. All in all, the company plans to return as much as $100 billion to investors by the end of 2015. The move is seen by some analysts as a good start rather than a complete solution, as shareholders have been clamoring for more since the shareholders' meeting.

In addition to earnings details and an updated capital plan, Cook hinted that new products would not be available as quickly as once thought. He alluded to new releases in the fall, meaning the iPhone 5 upgrade would miss the summer release some had hoped for. Rumors of a cheaper iPhone abound, though it seems this may be delayed as well.

Behind the numbers
While the operating results were hardly glowing, putting them in context is an important first step. It is very easy to forget how stellar Apple's results have been, even compared to rivals like Google and Samsung. Google has avoided the plunge that took Apple shares down 44%, but on valuation and other metrics, Apple's stock looks compelling here. The impact of these past results is that the street is now looking for near perfection from the company. Most companies and investors would salivate over Apple's results, yet they look meager relative to hopes.

Still, the report was not without some points of concern. For example, growth in China came in around 8%. This was the slowest growth region for the company behind the U.S., underscoring how much of a challenge Apple faces in this critical market. With Android still the dominant OS, and with Nokia's Windows Phones doing well, Apple's success is far from certain in the region.

Ultimately, the $400 level remains a critical one for Apple, particularly over the next few days. If the stock can hold above this mark, investors may gain the confidence to help push it higher. If shares falter below $400 for an extended period, the stock could tumble further. Even given this risk, an allocation makes sense here because the pure value is absolutely present.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
AAPL
$145.54 (-1.07%) $-1.57
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$2,288.90 (-1.38%) $-32.11
Nokia Corporation Stock Quote
Nokia Corporation
NOK
$4.88 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.