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Apple postscript



In my post last week "Apple sure looks cheap" I argued that, at $486, lots of bad news was being priced into AAPL stock. With the stock now trading at less than $460 in after-hours trading in response to Apple's fourth-quarter earnings announcement, it looks like I was under-estimating the potential for a negative surprise.


Here's what the chart now looks like, including today's plunge of almost 11%. In the great scheme of things, the recent selloff still ranks as a minor disappointment.

In any event, I have to believe that today's after-market crash will come to be seen as an over-reaction in the fullness of time. Most companies would be thrilled to report record quarterly revenue, record quarterly net profit, a 29% gain in iPhone sales compared to last year's quarter, a 49% surge in sales of iPads compared to the year-ago quarter, and triple-digit growth in China. iPad sales would have been even stronger, but they couldn't make them fast enough. Evidently, however, expectations were inflated.

Does this mean that Apple's earnings are doomed to decline going forward? I have a hard time believing that. At the current trailing PE of 10.4, AAPL is very cheap for a stock that can post such an impressive list of accomplishments. There is every reason to believe that earnings growth will continue to be positive (as production catches up to demand and new markets continue to post growth), and new product releases will be well-received.

Full disclosure: I am still long AAPL at the time of this writing.

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