HN Explorer

Ask HN: Why is AAPL down to $527 a share from $705?

11 points by schrodinger ↗ HN
AAPL had steadily increased all the way up to around $705, all the while holding a recommendation to buy. Then, without any explicit reason I can see, it's suddenly started constantly falling all the way down to a new low of $527.

I'm asking as a completely honest question: can someone versed in economics explain what they think is going on? What changed and why are they on such a decline? Was it just over priced based on the presumption that they'll continue to beat expectations, and they haven't?

I'm not looking for trading advice or opinions on how the company is doing, but rather an objective economic explanation of the market factors at play.

31 comments

[ 2.9 ms ] story [ 82.1 ms ] thread
jhacks
You have it pretty right on with the "over priced based on the presumption that they'll continue to beat expectations, and they haven't." The iPhone 5 wasn't a record breaker new device, it was them being complacent and creating a marginally improved phone. The iPad Mini was them REACTING to Nexus 7, Kindle, Etc. And now with Microsoft coming in with Windows 8 phone, Windows tablets, etc... more competition for them.

And it's not like investors (and the stocks they invest in) are necessarily going up / down for a great reason. A lot of it is also emotional. And I think the factors I noted play into the emotion that Apple might have seen their peak in all out domination of smart phones (although android has greater share) and tablets. They would need another true innovation to see the type of growth they showed before.

khmel
Because, it was overpriced. Too many people believed that this gonna be the first 1 Trillion company in market cap.

Problems started before launch of IPhone 5 when it became obvious that IPhone maps are not good - market did not like this Apple vs. Google war. Then there was not very successful launch Ipad mini - it was way too expensive to become killer-product. Apple fired few top managers becaus of this drawback - also not a good sign. Finally, Microsoft 'cope' Apple format for retail stores and launched Windows 8 with more revolutional design then Apple products have.

I was personally disappointed with absence of NFC chip in IPhone 5. Apple mossed good opportunity to enter NFC payments market, while Android is already there.

Apple is loosing their edge.

taligent
Kind of funny that every single thing you said is wrong.

Apple isn't overpriced according to its P/E. The market couldn't have cared less about maps. The iPad Mini looks like being a bigger success than even Apple predicted according to Morgan Stanley. Apple only fired one manager related to iOS and it was for more than just maps. Finally sales of Surface/Win8 have not met internal expectations according to many recent reports.

hiddenstage
When Apple was at $700, it had the market cap of Google, Exxon Mobil, and Caterpillar combined.

In a hypothetical scenario, would you rather own all of Apple or all of Google, Exxon Mobil, and Caterpillar?

My point is, I'm not sure P/E means as much with such a ridiculously high market cap.

khmel
My perception is that this is zero sum game. For big companies like Apple their capitalization makret is driven mostly by institutional and megafunds money. Those guys are very inertial in their invetsment strategies, and their ammount of funds is stable. Decrease in Apple demand should mean that those guys realocated their funding to other IT companies, or moved money to another industry (this is less probable and takes more time).
mkr-hn
Microsoft's ecosystem is a credible threat to Apple with the standards set by Windows 8 and Surface. Apple will have to show that it can respond meaningfully before investors get overconfident again.
taligent
Except that lots of reports are coming out that Win8/Surface have not been selling well.
mkr-hn
That's because every other Windows 8 device maker took the hint that Microsoft would eat their lunch if they didn't shape up. Look at all the new Windows tablets, laptops, and phones and you'll see Surface in them. This was the unspoken theme of that launch event where you saw variations on Surface from many different manufacturers.
taligent
You are missing the point. None of it is selling well. The OS or the Surface itself. And HP, the biggest OEM seems pretty dismissive of the idea of Microsoft eating their lunch:

http://www.engadget.com/2012/11/15/hps-todd-bradley-doesnt-s...

mkr-hn
Judging the potential of Windows 8 and its ecosystem by its first month would be like judging Apple by two quarters of falling stocks after ten years of great performance.
Cookingboy
It comes down to this: most shares of Apple are being held by large institutional investors, and they have guidelines on how much of their portfolio can be consisted of a SINGLE stock. Before the drop, Apple has grown almost 70% this year, which has made it a huge portion of a lot of investment institutes' portfolio. Selling some of the shares for a profit-taking and re-balancing of position is what happened next. That's exactly what happened back in May when the stock dropped close to 20% as well.

Now you may ask why it has dropped close to 30% this time? Simply because the market in itself was not doing well during this past month either. After the usual 20% correction, the market was hit with Obama's reelection, the fiscal cliff uncertainty, uncertainty on next year's capital gain tax increase, plus the usual end-of-year-profit-taking. So the correction went quite a bit further than those investment institutions have expected. That is why pretty much all analysts on Wall Streets right now are EXTREMELY bullish on Apple, since those fund managers will inevitably use this opportunity to restock (pun intended) their portfolios with cheap AAPL shares in the near future.

And don't listen to anyone who tell you Apple is "over-priced", right now it has a lower P/E ratio than Microsoft, so unless you really believe it has lower growth potential than Microsoft in the near future, the stock is quite undervalued. The stock has outgrown MS, Google, etc by quite a bit in recent years, but Apple's bottom line have grown by even more.

mkr-hn
People are more willing to be critical of the company now that the reality distortion field is down. Being critical of is not the same as being anti-. I don't see a single anti-Apple comment in this thread.
Cookingboy
Except being critical has nothing to do with OP's question. Internet criticism do not account for large market fluctuations like this. Only fundamentals, either in the company's balance sheet (which is not the case) or market forces (which I believe is the case) can have influences like what we have seen. Steve Jobs have been dead for a while, and criticisms of Apple have been around far longer than his death. I am not arguing for the validity of those criticism, I was simply trying to answer OP's question from a stock market perspective, which is what he asked.
mkr-hn
You edited out what I was replying to. I should have quoted it.
Cookingboy
@mkr I edited out the part where I was thinking OP may not get the best answers because HackerNews is pretty anti-Apple. I took that part out not because I don't stand up to my words, but because it doesn't contribute to my answer and may distract the conversation (you down-voted me over that part instead of my real answer is proof). I have no interest in starting or be involved in another flamewar whatsoever.
mkr-hn
I downvoted a needless stab at critics. That's a fine reason to downvote. Changing votes (especially when the target of the downvote goes away) is one of a long list of features HN needs to take from Reddit.
Cookingboy
I did not mean it to be a "stab" per se, people are entitled to their own opinions, but I was genuinely concerned with OP's prospect of getting un-biased answer here. Too many people are too emotionally involved when it comes to Apple. And from what I've read so far on this issue from many other sources, many Apple critics use the price drop as a way to validate their opinions, which I think is a bit too soon at the moment (the critics may or may not be right, but right now it's definitely too soon to tell) and the drop can be explained by perfectly reasonable market mechanism in the short term.
mkr-hn
I think the impression of anti-Apple sentiment (imagined or real) is worth discussing though. Write up a blog post/self post and submit it.
Cookingboy
I edited out the part where I was thinking OP may not get the best answers because HackerNews is pretty anti-Apple. I took that part out not because I don't stand up to my words, but because it doesn't contribute to my answer and may distract the conversation (you down-voted me over that part instead of my real answer is proof). I have no interest in starting or be involved in another flamewar whatsoever.
mkr-hn
> "because HackerNews is pretty anti-Apple. I took that part out not because I don't stand up to my words,"

It is not. Why would you (wisely) edit that bit of idiocy out to avoid a flame war before putting it back in with two other comments? It's like you're desperate to get the stab in despite knowing what will happen.

Cookingboy
I would greatly appreciate if you don't call opinions you disagree with "idiocy".
mkr-hn
An opinion with something to back it up can be discussed reasonably by reasonable people. Bold assertions with no backing are idiocy.
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FrankFrank
The market does not work in objective economic ways. The market prices different stocks because of various different factors - the weights of which are continuously changing. IMHO, this phenomenon is well explained by George Soros in his FT lectures from 2009: http://www.ft.com/indepth/soros-lectures

Some good examples or this behavior: - The run up in the overall market, and specifically in the Mortgage Backed Securities (MBS) and the eventual crash was not based on good economics and lasted for several years. - MDBX (MedBox) recent run up and correction is also a good example (TechCrunch, of all things, brought this to my attention) - The recent drop in DDD (3D Systems) after a negative Seeking Alpha article, is also an example of how the market doesn't always behave in objective economic ways.

ekpyrotic
The US political context plays a part:

As the Bush tax cuts are set to expire in January, 2013, investors are selling profitable equity holdings to lock in profits---before a capital gains tax hike. At the same time, uncertainty over the fiscal cliff has left investors feeling bearish about the US equities market.

As a result, while investors are selling, there is no one to buy---what surely is---an under-priced stock.

lemma
This is probably the most correct and verifiable answer. To check: search for any stocks that have had significant appreciation in the last few years and see how they've done lately versus stocks that have been flat during the same period (msft, for example).
iaw
I think if you compare the SPY (S&P 500) to AAPL over the time period concerned you'll see the SPY losing 5% while AAPL lost 20%. I agree that ekpyrotic's answer is the most verifiable reason, but I do not believe it's the only reason.

One could make the argument that Apple has a massive off-shore tax liability, and with Obama back in office the odds of them escaping it favorably is reduced.

An additional argument is that, with Steve Jobs dead, there is concern over the long-term viability of the companies growth prospects (where can Apple go from here?). Only reinforcing this is the misstep with iOS 6 and the seeming lack of improvement in the recent iPhone.

Additionally market psychology is one to overreact. Presuming the stock was overvalued at 702 it is potentially undervalued at 520. My roommate just bought 20 shares because he thinks the price is good...

orangethirty
I'm not looking for trading advice or opinions on how the company is doing, but rather an objective economic explanation of the market factors at play.

There is not a logical/objective explanation, because markets do not follow logic. Markets are powered emotions. Seems the market feels that APPL is not worth so much these days. That will change tomorrow, and then change again the day after. There is no way to predict it. If you would like to learn more, read the book called "The Intelligent Investor" by Benjamin Graham. Mr. Graham was Warren Buffets professor and mentor in college.

dreamdu5t
The market is powered by individuals exchanging. Emotions play a role in transactions, sure.