This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Growth Fears Biting Apple

Investors already seem to be registering their doubts. Although the stock is up 12% for the year, that's far off the more than 200% rise it posted last year. And since Apple reported its second-quarter earnings earlier this month -- and with it the sequential decline in iPod sales -- the company's shares have dropped 12%.

Apple is trading at about 28 times its projected earnings for this year. That's not an unreasonable amount to pay for a company whose earnings and revenue are skyrocketing. But should growth slow, the company will start to look increasingly expensive, especially relative to rivals such as Dell (DELL), which is trading at just 22 times its projected current-year earnings.

With growth of its star product slowing, the company needs something else to drive its growth rate and its stock price, analysts say. The company, investors and analysts have long hoped that sales of the iPod would have a "halo effect," attracting users of computers running Microsoft's (MSFT) Windows operating system to Apple's line of Macintosh computers. Even with the iPod driving its growth in recent years, the Macintosh line still provides Apple with the bulk of its revenue.

While Macintosh sales have outpaced those of the overall PC market in recent quarters, the extent to which those sales were driven by the halo effect is unclear. And Apple may have a difficult time persuading consumers who buy its bargain-priced music players to purchase its typically pricey computers, analysts say.

"It really comes down to, how many Mac units is this going to drive?" says Bare. "That part is really less clear."

Even if the company does see a sustainable halo effect from the iPod, Apple still will likely need to come out with another hit product soon, say analysts, who point to video device or a wireless-enabled iPod as the company's next effort. Regardless, Apple needs a new device and needs it to be a success, because some investors and analysts are already building projected sales from the next product into their estimates, notes Wu.

2 of 3

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs