The share price of Apple Inc. (NASDAQ:AAPL) is in a sustained and boring crisis at the moment. After an initial pop from the firm’s FQ2 2012 earnings report the shares have drifted in the mid 500s stopping what had been an excellent rally in the firm’s stock price.
There are several obvious reasons for the lackluster performance. The first is the general depression of the stock market as European worries mount and expectations on the macroeconomic front become more volatile. There is also the problem of stumbling growth in the US economy which still forms a large part of Apple’s market.
Michele Ragazzi's Giano Capital returned 1.9% for March, taking the fund's year-to-date performance to 1.7%. Since its inception, Ragazzi's flagship fund has produced a compound annual return of 7.8%. According to a copy of the €10 million fund's March update, a copy of which ValueWalk has been able to review, Giano's most significant investment at Read More
Investors may also worry about changes to iPhone subsidies in the coming months. Several reports have suggested that this might happen though it has failed to materialize in any form yet.
There are several trends in that have contributed to the firm’s poor performance even as it ramps up to what will surely be the release of a new product at its World Wide Developers Conference this weekend. Events like this usually cause a jump in the firm’s stock as pent up demand is hoped to be expressed on the update of a product line.
There is also the incoming release of a new iPhone model which if rumors are to be believed will arrive some time this Autumn. That, if nothing else, is a cause for excitement among investors.
Demand, or expected demand, is the problem for Apple. China may be heading toward crisis and all growth expectations are hinged on increased sales in the world’s largest market. The country may be about to enter into its own brand of economic crisis. That doesn’t bode well for Apple’s sales.
There are several indications that China is about to go through a slow down, if not a fully fledged crisis. The country recently lowered its interest rates for the first time in four years. That move was ostensibly made to weaken the effect of Europe’s slowdown.
Europe’s problems do depress China but the country has problems of its own. There is a real estate bubble inflating in many of the country’s biggest cities. If the country goes through a hard landing it will not bode well for anyone trying to sell in the market.
Aside from crisis speculation, consumer spending in China is slowing down. That is the number one problem facing Apple today as the firm seeks to expand in that market.
Most of the indicators of the slow down in consumer expenditure are coming from Hong Kong or from companies operating within China. The closed and incomplete nature of China’s economic data means we can’t take a real look inside to see what’s happening there, but it is not good for retailers.
A slow down in retail will hit luxury goods particularly hard. There will be a decrease in new purchases of electronic devices and a lengthening of the upgrade cycle. This is all very bad news for Apple.
Investors treat Apple as a company whose price is built on expectations. It is clear from its P/E ratio that that is simply not the case. Apple’s price is very reasonable considering its fundamentals. If expectations were factored in there would be a huge premium attached to the stock.
Apple has grown so quickly that it will take some time for investors to catch up to this fact. China’s slow down may be coming and it may be worse than it looks right now. That could send the other world economies spinning as they are already vulnerable.
Apple investors expectations are down on the idea that Apple will lose if China begins to decline. They are right, but the stock is still extraordinarily valuable.