Dunstan Prial has penned quite an interesting article on Fox Bussiness where he skeptically questions Apple’s (AAPL) ability to keep the mega-hits coming while comparing the stock trajectory of the world’s most valuable company — Apple’s shares have catapulted by more than 400% in the past 60 months — and nearly 70% in fiscal 2012 alone — to both the run up in Internet stocks during the late 1990s and last decade’s real estate bubble.
The recent nosedive however, in the value of Facebook (FB), Groupon (GRPN), Zynga (ZNGA) and other over-valuated social media stocks, whose current market capitalization have shrank to a tiny fraction of their peak value, has brought back painful memories of dotcom bubble days with investors/traders throwing money into companies with shaky financial metrics that didn’t justify the stock price – buying basically the stock rather than the fundamentals of the company.
According to Prial, there are bubble parallels with what is happening now to Apple shares. And they are many. In fact, if we compare Apple stock chart against the Nasdaq’s dotcom boom chart the similarity are quite striking.
“Much like the past manias for dotcom stocks, the demand for Apple’s stock is based on two separate but equally false premises”, writes Prial. ” The first is that Apple is somehow different than other companies, that demand for its products will grow unabated forever.”
“As innovative and successful as Apple has been in the past five years,”continues Prial, “its financial metrics don’t justify the stock price and haven’t for a long time. Like many tech companies before it, whether people want to admit it or not, people are buying the stock rather than the company, and that rarely ends well.”
Rob Enderle, president of the Enderle Group, seem to echo Prial’s analysis. He has predicted that in fiscal 2013 Apple will face fierce competition in the smartphone and tablet markets from rivals such as Amazon.com (AMZN), Microsoft (MSFT), and Apple’s legal foe and main competitor Samsung Electronics, whose products run on Google’s (GOOG) Android platform. Enderle also believes that “anyone who thinks Blackberry maker Research In Motion (RIMM) [is history] is making a mistake.”
That last point made by Prial is that Apple’s stock can’t possibly sustain its meteoric upward trajectory forever.
“At Apple’s current price to earnings ratio of nearly 16, investors have an expectation that the company will continue to grow revenues at levels mirroring those achieved over the past decade, as Apple rolled out one successful product after another — the iPod, iPhone and iPad devices, and all of their various updates. That’s unlikely to happen.”
Prial says investors need look no further than Microsoft for proof that “all companies are vulnerable to rapid shifts in technology and in consumer demand for that technology.”
Microsoft’s shares have been stagnant for years at the $25-$35 range, going absolutely nowhere the past decade as the company has suffered serious execution problems on the innovation side precisely because, as Prial points out, “no company is immune to periods of stalled growth.”
AAPL closed last session up $4.17, or 0.62%, to $680.44. Day’s range $675.77 – $682.48.