This commentary originally appeared on Real Money Pro on Oct. 19 at 8:53 a.m. EDT.
After the close Apple (AAPL) reported a miss to expectations for the first time in 26 quarters. (While the forward guidance was upbeat, it was not as good as the headline, as the next quarter includes an extra week.)
The common (very) upbeat refrain on Apple from the Street of Dreams (and almost every Wall Street analyst) this morning goes something like this:
"Buy the dip in Apple, as we view this morning's pullback as an attractive buying opportunity ahead of what should be a very strong upcoming quarter, as the company benefits from several important product introductions." -- Every Wall Street analyst today!I fully recognize (as does the entire investing universe) that after deducting the tax-affected repatriated cash, Apple's shares appear inexpensive. This has been the case for some time. But, if I were an Apple shareholder, I would be asking myself the following eight questions this morning (I don't have the answers, and I didn't have the foresight to buy the shares at lower levels!):
- Valuation is rarely a market catalyst. Who doesn't know that Apple's valuation, excluding its cash position, appears inexpensive?
- In reading the analysts' earnings post mortem and explanation of why the company missed on the bottom line, why is it only now so obvious to analysts that Apple has been impacted by iPhone purchase deferrals ahead of the introduction of the iPhone 4S? Why wasn't that included in analysts' estimates?
- In my few decades of investing experience, when companies cite the impact of weather, seasonality or product transitions (as was the case with Apple) as reasons for a profit miss, it is usually a sign of a company's maturing (sales and earnings) growth cycle. Have we seen a peak in growth rates at Apple, and beyond the quarter catch-up, might we begin to see decelerating growth at Apple in 2012-2014?
- Size matters. Should investors be surprised that, with annual revenue having risen (fiscal 2011 September year just completed) to over $108 billion, sales and profit growth will become more difficult going forward? Fiscal 2014 sales are projected to approach $200 billion. Have the outlook and expectations for Apple grown too optimistic?
- A 3 million unit shortfall in iPhone sales and slightly weaker iPad numbers (11.1 million vs. consensus of 11.6 million, but there were estimates for 13 million units!) resulted in the profit miss. Are investors overestimating the short-term growth prospects for the overall tablet market? And what about the weakening trend in iPod unit sales (down 27% year over year) that signal a secular decline in the product category? Doesn't this place more pressure on the success of future new products?
- Apple's corporate and product success are well known. Are these success too well known as manifested in a near unanimity of bullishness on the part of Wall Street's sell side?
- The ownership of Apple shares is broad, and institutional sentiment toward the company appears to be approaching a positive extreme. One could argue that the long side in Apple is crowded. Doesn't everyone own the stock? Who will be the next investor in Apple's shares that will catapult the valuation and shares toward the next and higher level)?
- Most recognize that Steve Jobs has already thought about and has contributed to another few years of new product innovation. But will the miss last night revive the issue whether the remarkable disruptive innovation instituted by Jobs (in the past) can be continued into the future after his imprint is removed?
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