This Apple Inc. (NASDAQ:AAPL) Bear Was Absolutely Right

Right after the new year kicked off, Gundlach went back on CNBC to reiterate the same $425 prediction. He said that his call wasn’t about being a bond guru or a equity specialist, but merely because he’s a “market guy” and that $425 was about the price that Apple went vertical and that the “bubble” would soon have to pop and shares would return from whence they came. I wondered if he would ever be right.

By mid-morning today, Apple shares tapped a fresh 52-week low of $422.90. Gundlach was right. Investors are looking at a pullback that has now officially reached 40% since late September — less than six months ago. It took a while for Gundlach’s call to pan out, but pan out it did.

Not so absurd anymore
As far as those “absurd” valuation figures I calculated from his first $425 prediction, they’re even cheaper now since Apple has posted an earnings release since, which also happened to spark a plunge.

Since Apple’s earnings per share last quarter were effectively flat from a year prior (down $0.06), the previously estimated P/E is still right on target at 9.6. However, Apple did add an additional $15.9 billion in cash to its coffers during the fourth quarter. That means that Apple’s P/E ex-cash now comes in at 6.3, and the company’s $137.1 billion in cash comprises 34% of its $400 billion market cap.

Of course, those figures don’t really matter anymore, since even Apple bulls that think the company is undervalued can sometimes find reasons to sell. Reasons that have nothing to do with fundamental valuation but everything to do with Apple’s fickle investor base and the fact that shares are dominated by emotional momentum. Like it or not, Apple shares have disconnected from intrinsic value and now trade solely based on emotion, with fear being the No. 1 feeling right about now.

Gundlach’s $425 price target has proven to be absolutely right. Should investors have been listening all along, even though it was seemingly predicated on anecdotal observations instead of fundamental analysis?

The article This Apple Bear Was Absolutely Right originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.

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