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DRJ's Blog

January 24, 2013

To hear all the talking heads bemoan the state of Apple, you'd think the stock was heading to zero. But let's try a little experiment.

Suppose we blacked out the ticker symbol and looked only at the company's metrics:

  • Forward P/E minus cash of 7.
  • Gross margin of 38 percent or 39 percent this year.
  • Revenue Growth this year of 17 percent.
  • Growing revenues in China at almost 70 percent.

Wouldn't you be buying with both hands? I think we all would.

Now let's say I showed you a stock chart, again without ticker. Let's say that shares were churning from $50 to $55 but kept testing the $48 level going into the company's earnings report. Despite record earnings, the stock fell to $45.

Would you be screaming how the stock is broken, or would you say this is an easy buy here?

We all talk about $50 moves being huge, but consider them on a percentage basis: McDonald's moves $5 from time to time (Oct. 18-19), and Disney fell $4 recently (Nov. 8-9). Stocks do move 8 percent to 10 percent, and it doesn't mean that they are finished.

If Disney traded triple digits instead of double digits--which it would have done if the company hadn't split shares multiple times in previous years--then these moves would have been $50 or $40.

Is MCD broken? Did it have to revamp all product lines and scrap the dollar menu?

Is DIS broken? Did it have to double prices at theme parks and slash movie production?

No, and neither should Apple have to fundamentally changes its business model. So please, enough about AAPL being a broken stock!
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