Apple (AAPL)

$457

Data is as of

Expected to Report

Sector

January 31, 2012

Apr 23

Technology

Sharek’s Take

Apple’s big problem is the company did so well a year ago that now it isn’t topping those phenomenal results. Here’s quarterly profits (in dollars per share, rounded) for 2010 through the present.

2010	2011	2012	2013
4	6	14	14
3	6	12	?
4	8	9	?
5	7	9	?

Had AAPL posted $10 in profits in fiscal 2012 Q1, the $14 vs $10 would have looked great (40% growth). Instead AAPL had flat profit growth — and growth money managers are selling the stock because AAPL isn’t, quote, a growth stock anymore. Some fund managers have to sell a stock if it doesn’t pass a set of criteria. For instance my first sell signal is sell when profit growth slows. For me, selling at this point is a little illogical. AAPL has a P/E of only 10 and a yield of around 2.4%. If profit growth can pick up in the next year then AAPL could get a P/E of 15 and the stock could recover. Until then, there’s little momentum here.

One-Year Chart

AAPL’s estimated Long Term Growth Rate fell from 22% to 14% since last quarter. Notice profit growth is set to be negative the next two quarters, so don’t expect the stock to recover for a while. 2013 profit growth is expected to be 1%. The only thing that looks good here is the P/E of only 10.

Earnings Table

Last quarter, Apple sold 29% more iPhones and 48% more iPads than a year ago. It also sold 22% less Mac computers, as people switched from Macs to iPads. The net result was 17% sales growth and 0% profit growth.

AAPL beat by 50 cents but estimates were slashed last quarter.

Annual Profit Estimates have declined for three straight quarters and need to stabilize before the stock can make a meaningful more higher.

Quarterly estimates show profit growth should accelerate 3qtrs from now. I predict the stock will rise in anticipation of this.

Fair Value

At this point — with a sea of red in its Earnings Table — AAPL is worth 15x earnings, or around $700 to $750.

Ten-Year Chart

The last time AAPL had slowing growth I sold the stock only to buy it back at a higher price. Note the 17% profit growth when that correction occured. Two catalysts for long-term growth are a deal with China Mobile to push the iPhone across China and the Apple TV.

60% in Power Ranking

Bottom Line

Growth Portfolio

5 of 15

I predict Apple will start to gain momentum in late-July or early-August when profit growth is set to accelerate. At that time analysts will also be looking to 2014 as AAPL’s fiscal year end is in September, so that points to a higher P/E on higher estimates.

AAPL is ranked 5th n the 15 stock Growth Portfolio and 8 stock Aggressive Growth Portfolio Power Rankings. This is one of my biggest holdings and I’ll be be selling some shares to free up cash for other investments.

Aggressive Growth Portfolio