Last night’s move in Apple’s share price – a drop of 12.4% to US$450.50 shows just how flighty the investment community is toward the stock, especially in the post Jobs era.
However, what does this really mean?
Well for holders of the stock, without a stop in place. It probably was a nose bleed, but what of the business itself and as a potential investment? Firstly, the company just made over $13bn in profit the fourth biggest quarterly profit in history. And has very good margins – arguably at the higher end for the industry.
It is still growing – and while this growth may be slowing, it is growing!
That said, the stock is not garnering the support from the Street that the current numbers probably merit. Apple’s P/E is around 11.6x earnings (it was over 16x 12 months ago), compared to Google at 21x. We buy stocks today, for what they can deliver going forwards. And should we see the price stabilise at these levels. The stock looks very attractive on a valuation basis.
Fundamentally, moves into new markets, where perhaps there is less price potential. For these thicker than average margins. May be a growing feature for consumer companies. That are pushing into China and India. Something which analysts are no doubt factoring into the pricing models. All part of the new world we live in. And the reality of truly global business.
Much has also been made of the pressure on Apple to avoid a “Dud” NeXT (no pun) new product – really nothing new here, as the Company’s history will attest – afterall there are plenty of bleached bones from previous product launches in that particular closet.
For those that buy the longer term story, and appreciate bargain basement valuations, a longer dated call option would give a lower risk leveraged exposure to the stock, than outright stock purchase. Given volatility is running high here, this may be a more expensive than in recent weeks. So perhaps the sale of some short dated calls over the bought call (Calendar spread). May help take some sting out of the trade, albeit capping some upside – so a delay in writing the call. To give the stock some breathing room, may well be a prudent approach.
Food for thought and one to watch with interest, but more importantly not just watch. Billions were wiped last night – so if there is a bounce in the stock, someone is going to cash in – will that be you?
