Apple Inc. (NASDAQ:AAPL) just continues to take a merciless beating in the markets. The carnage continued Wednesday, as some bad news regarding a key supplier has triggered the stock to fall more than 6 percent at one point today to a 52-week low. And as some negative reports are coming out that Apple might actually post earnings below expectations in its next earnings report due out next week, which followed what was a disappointing report in January (despite a revenue number that was larger than at any point in the company’s history), and with the stock now dropping 40 percent since its all-time high just seven months ago, the lingering question is out there again …
Has Apple Inc. (NASDAQ:AAPL) reached the end of the line as a growth company? Is it time to cut bait, nestle Apple in as a nice blue-chip stock and move on?
There is a lot of debate that will rage in the coming days, and will probably last until after Apple reports its earnings. There are the bears who are winning in the market, but are they still going to be loud if Apple dips back to the $390 level where it was when CEO Tim Cook first took over the company? There certainly is a case for the bears to continue growling.
Shoot, even a couple of writers who try to make a bull case for Apple Inc. (NASDAQ:AAPL) fall into the trap of having to revert back to bearish qualities in the company and having to defend their stances with “but …” statements. Granted, some of the “but …” statements are pretty compelling, especially at this levle, where Apple could certainly be called a value (gasp!) stock.
But now that the company is reaching levels that weren’t thought of seven months ago (at least not this quickly anyway), the discussion will likely begin in earnest: At this level, is Apple a buy? is this company the same company that was the most valuable company in the world just a few months ago?
Before you answer and figure out your position on Apple Inc. (NASDAQ:AAPL), let’s look at the bears and bulls on this stock.
First, let’s get the bears out of the way since they seem to be winning over the Apple Inc. (NASDAQ:AAPL) investor class:
* Earnings have been down, and are expected to drop further in this next quarterly report. This can be enhanced with the latest report that iPad Mini sales were likely to tank in anticipation of the refresh later this year.
* The legendary, lofty profit margins are shrinking and likely will continue if Apple follows through with a mid-range smartphone.
* More cash than the company knows what to do with … literally. Yes, bears see this as a bad thing.
* No definite vision for the company from any executives, including CEO Tim Cook.
* There is no word of any truly revolutionary devices coming down the pike. Everything seems reactive to what customers are saying or what competitors are doing. Except NFC, which Apple has so far refused to utilize.
* The flagship device, the iPhone, is not an innovative market-changer anymore. And with more intense competition and cheaper phones on the horizon, it’s hard to argue for the premium price of an iPhone.
That latter point is certainly compelling, no doubt. And unless Apple Inc. (NASDAQ:AAPL) moves forward with something that takes innovation to a whole new level, the Apple iPhone may very well be just another smartphone in the market … and a very expensive one, at that.
On the other hand, the Apple Inc. (NASDAQ:AAPL) bulls say this:
* Apple’s stock is dirt cheap at 9 times earnings, which is 67 percent below the S&P average of 15 times earnings.
* Willingness to produce a mid-range smartphone shows an ability to be flexible and a willingness to consider growth more important than profits. While that may not look good on the bottom line of the front page of a quarterly report, that certainly could portend some big revenue numbers in coming quarters.
* The Apple management team may not be visionary like Steve Jobs, but it is very smart. Most of the key people who have created the developed the current crop of devices since 2007 are still with Apple.
So what is the verdict here?
The bottom line: The tech market is about consumers. And consumers are savvy enough that they aren’t necessarily looking at the price of a device, they’re looking at the overall value. In other words, if the iPhone can become truly innovative and special again, and if Apple can make a mid-range phone that is very similar to an iPhone and does not cut many corners (but lowers profit margin), then there is still a market for Apple to grow.
We agree the stock is cheap. And the company is still solid, even if the phones aren’t revolutionary anymore. The quality is still good, and it’s only a matter of the company being willing to open up its market. What do you think? Are you still bearish, or do you find yourself bullish at this level? Let us know in the comments section below.
DISCLOSURE: I own no positions in any stock mentioned.
