Could This Be the Fate of Apple?

As Steve Jobs continues to become less and less of an impact player at Apple Inc. (NASDAQ:AAPL), whisperings on Wall Street have started. Institutional players and big hedge funds seem to be questioning the ability for Apple to continue to grow at such a quick pace. This growth rate has given it the price to earnings multiple it currently holds. The quiet talk has been something that has built up since Steve Jobs took his second leave of absence from the company in recent months but is only partially a result of his departure.

Throughout history, companies have gone into mega growth momentum phases. Look back at stocks like Microsoft Corporation (NASDAQ:MSFT) and Cisco Systems, Inc. (NASDAQ:CSCO). These stocks had their golden years where they were the talk of the town. Everyone owned them and thought the good times would never end. However, inevitably, the good times always end. This is two fold. First, the larger you become, the harder it is to grow at the same rate as previous years. Doubling your size when you are a $100 million company is a lot easier than when you are a $100 billion company. Secondly, every other company in the sector targets you as a leader, copies you and tries to one up you. As the competition pushes faster and harder, it is almost impossible for the leader to not stumble. One miss step by management and you are the old maid.

As the iPhone is amazing, the Droid is right there. As the iPad is a work of art, many companies already have competing products on the market which are nearly as good, if not just as good. Price wars begin, margins drop and ultimately stock price falls. This is the cycle of life as a mega growth company.

This talk has been increasing since the departure of Steve Jobs. Part of it obviously has to do with him being the brain of Apple now absent. However, the other half is definitely the mega company syndrome. It looks like many large institutions and hedge funds have started to unload their Apple positions. While they still hold Apple, a distribution of sorts has been increasing as they sell into the retail investor. This can clearly be seen in the stock price as it has stalled out and created an M top. This type of top is usually bearish and smells of distribution by the big boys.

While Apple will remain a leader for years to come, investors must start to wonder if their fate may be sealed like that of Microsoft and Cisco. Microsoft ran to $60 per share in 2000 only to fall back to the $20 – $30 range for the last ten years. Could this be the fate of Apple?

Chart provided by: RealTick LLC

About Gareth Soloway 168 Articles


Gareth Soloway has been an avid swing and day trader since his days at Binghamton University where he studied Economics. After college, Gareth quickly excelled as a financial advisor, helping clients get their financial houses in order. While helping others gain financial independence, he continued to study the day trading and swing trading world, developing a unique market philosophy and proprietary methods. Following his work in the financial sector, Gareth went on to trade alongside professional traders. Unable to tolerate the hype of Wall Street any longer and having an amazing ability to profit using his developed techniques, Gareth Soloway decided to partner with his friend and colleague, Nicholas Santiago to form Chief Market Strategist Gareth Soloway serves as the president and CFO of InTheMoneyStocks.Com.

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2 Comments on Could This Be the Fate of Apple?

  1. Yeah, there was an “M-top” around $300…around $250…around $200…so what’s your point? We are now hovering around $340…perfect spot for ANOTHER “M-top”. Apple profits keep rising every quarter. They still lead their segments, with everyone else scrambling to imitate. Innovation…NOT imitation…is what separates Apple from the rest! You want to bet on the also-rans? Your choice. I’m placing my bet on the horse out in front.

  2. Microsoft was trading at ttm p/e~70 when it was trading at stock price of $60/share and a market cap of over 600 billion in 2000. Annual revenue was ~23 billion and y/y growth ~30%.

    Apple today has a ttm p/e~18 with a stock price of $340/share and a market cap of over 300. Annual revenue this year will be ~100 billion and y/y growth ~60%.

    So, APPL today relative to MSFT in 2000 has 4X the revenue, 2X the growth… yet is valued with 1/3 the multiple and 1/2 the market cap. These two have exactly what relationship in common again? The only thing that that I can determine from the data is one is undervalued the other overvalued.

    I could bring CSCO of 2000 into the conversation but with market cap of over 500 billion (again, almost 2X AAPL), 150 p/e ( 8X AAPL)… and only 17 billion in annual revenue (1/5 AAPL) the comparison gets really ridiculous and goes to one is undervalued to one is super duper overvalued.

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