In what appears at this stage, to be a quarterly occurrence, Apple Inc. (NASDAQ:AAPL) investors are once again unsure of the company’s future, as the firm’s share price has been unstable since the release of the firm’s latest smart phone, the iPhone 5. This evening, the firm’s shares stand just below $640.
Several phenomena have been speculated as the cause of the current slump. Some think it is the iPhone 5 maps debacle, while others have speculated that the company is suffering from nerves, over the iPad mini launch. Apple’s shares have done this for the past three quarters running, leading into earnings. There is little reason to believe the company’s troubles this time are different.
Apple Inc. (NASDAQ:AAPL) investors have been nervous in the month leading into earnings reports for the last three quarters. It is clear that those buying and selling the company’s share’s are unsure how to price them. In the last week, two very different predictions of the firms future have come to the fore.
The first of these comes from Nomura research. The firm projects that Apple Inc. (NASDAQ:AAPL) will continue to have high growth in the short term, but that growth will level off over the longer term. The company’s growth is projected to remain solidly high throughout 2013. 2014 will see the company face a slowdown. That is projected to last well into the future.
The research suggests that the company does no have long left in its current growth spurt. If the research from Nomura is correct, Apple Inc. (NASDAQ:AAPL) might be closer to Microsoft Corporation (NASDAQ:MSFT) than its advocates have hoped.
Apple still has a low multiple for a company in the technology sector, and one that still has a year of projected growth ahead of it. The market is shaken by the current trajectory of the firm. It is possible that their reasoning is the same as Nomura’s.
Contrarily, Forbes published an article on the fifth of this month, stating that to certain investors, Apple Inc. (NASDAQ:AAPL) may already be worth $1000 a share. The legendary financial maven, Peter Lynch, is exemplary of the kind of strategy that might value the company at this level, according to the Forbes piece.
This strategy values a company based majorly on growth capability. The Peter Lynch fair value equation given in the article is simple:
Peter Lynch Fair Value=Earnings Growth RateXEarnings
By this metric Apple Inc. (NASDAQ:AAPL), is worth 60X$40=$2400. Peter Lynch limits his own arithmetic, stating that he would be willing to pay 20X for a company with more than 20% growth.
According to the author, inserting such a a limit leaves the PLFV of Apple Inc (NASDAQ:AAPL) at around $1000. I’m not sure how he arrived at that number. My maths may be flawed but I see:
Peter Lynch Fair Value=Earnings Growth RateXEarnings
Apple Inc. (NASDAQ:AAPL)=20X$40=$800.
Even still, the inflationary number, that has not been uncommon among twelve month targets is more than a 50% on the current premium. Apple investors, including a huge number of hedge funds that deal in equity, are surely not undervaluing the world’s most valuable company by that magnitude. Can they?
Nomura obviously believes the firm is fairly valued right now, with very little room left to grow.The problem with Nomura’s report, is that it looks too far forward to be of much use to most investors.
If investors agree with the thesis put forward by Nomura, they will still invest in the company because of the growth expected in the coming year. Unloading is likely to happen when investors believe the slowdown is about to hit. If the company stays valued at current prices, the stock may be kept as a steady earner.
This is all assuming Nomura’s assessment is correct. There is, of course another possibility; Apple Inc. (NASDAQ:AAPL) may surprise the markets. The firm has been doing it for the past five years. Nomura’s assertion, that this year is the year they will stop doing that, is not easily supported.
There are markers of course. Steve Jobs’ influence is one year forever removed from the company. The iPhone is now a boring product to many consumers. It looks as if the iPad will head the same way very soon.
The iPad mini will, more than likely, open up new markets to the company’s tablet. If the firm can invade schools across the Western world, it is likely guaranteed sales of tablets for a lifetime. The same can be said for ordinary homes that buy the product, because of the brand recognition and lower price.
Apple Inc. (NASDAQ:AAPL) could, and it is not unlikely, release an entirely new product line in the coming year. Any new product will have to stand on its own merits, but one thing is certain; a new type of consumer electronic device would reignite the firm’s fan base.
Apple Inc. (NASDAQ:AAPL) is likely valued fairly, or below fairly, right now. the company is expected to go through these shakes when headed toward important earnings announcements. Once those earnings arrive, the firm will be on a steadier footing, whatever their significance.
Apple Inc. (NASDAQ:AAPL) has a crowd of investors afraid of uncertainty. Right now, there’s plenty of that circling around Cupertino. November, with a new product, and guaranteed earnings in the past, is a better time to judge the firm’s real value.