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November 9, 2012 5:53 pm
What a difference a few weeks makes for the world’s most valuable company.
Not so long ago there was plenty of talk on Wall Street of Apple becoming the first $1tn company and its shares topping the $1,000 level.
Now, with shares in the consumer electronics company having fallen 22 per cent from its September peak and entered bear market territory, investors are asking if the stock’s stellar run has come to a halt.
“The question we are all thinking about is what happens from here,” says Colin Gillis, technology analyst at BGC Partners. “Is this just a downward bounce before the stock marches back to new historic levels or is this the end of something special?”
Investors have been unsettled by legal disputes, management changes and a recent downgrade by the iPad and iPhone maker of forecasts for its next quarter . At the same time, competition from rivals and pricing pressures challenge its ability to protect its margins.
After reaching an all-time high of $705 a share in September, the recent drop in Apple’s shares has wiped $150bn off its market value. The stock has moved sharply below technical levels used by traders to measure momentum. The fall has been the biggest correction in its shares since the financial crisis of 2008.
“Anytime we’ve seen these sort of declines in Apple, it’s signalled a buying opportunity for investors,” says JJ Kinahan, chief derivatives strategist at TD Ameritrade. “But there’s been a lot of negative energy around the stock lately.”
The company’s outlook has wider implications. Apple makes up about 4 per cent of the S&P, meaning its performance can affect pensions and other tracker funds.
Shares in the company recovered on Friday, rising more than 2 per cent in morning trading in New York on reports that the iPhone 5 may soon launch in China. As smartphone penetration in the US crosses 50 per cent, unlocking the huge market for first-time smartphone buyers in China is among the company’s challenges.
“Apple certainly won the battle for the first billion smartphones sold, but the next billion is likely to be comprised by a set of companies,” one analyst said.
Yet there are many who still believe in the bull case. The stock trades at a multiple of about 11 times its forward earnings, far below companies with similar rates of revenue and earnings growth. The excitement surrounding its product launches in recent weeks has been accompanied by enthusiastic reviews for innovations such as the iPad mini.
Meanwhile, its iPhone 5 continues to see strong demand and the company has overhauled its Macbooks in time for the holiday shopping season. Ben Reitzes, analyst at Barclays, has kept a “buy” rating and set a price target of $800 on the company’s shares, citing the company’s continued ability to disrupt other market segments.
Others said the company would need to demonstrate it had the late Steve Jobs’ ability to innovate to reach record valuations. “If you are going to get to $1,000, there’s probably going to need to be a third leg to the iPad and iPhone story,” Mr Gillis at BGC Partners says.
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