A quick blurb about Apple's earnings.
Apple reported earnings last night which beat already lowered expectations. Little surprise. Under-promise over deliver as usual. However, guidance was very poor. That has not stopped the usual Apple groupies from proclaiming that Apple has become a value stock with a growing dividend and share buybacks. This is completely false.
On the surface Apple appears to the layman cheap. Compared to 2013 earnings expectations, Apple trades at a 9 P/E and a forward P/E of 8.3. What more could a value investor want? The reason that Apple is trading at a low valuation because everyone expects earnings to decline in the future. This is a key aspect which most investors fail to realize. When a non-cyclical stock trades at a P/E of lower than 10, the market is expecting declining earnings--analysts just have not realized this yet. In fact the market is expecting a sharp decline of at least 20% compared to analyst's 49.00 in earnings expected for FY 2014. The concept that Apple is cheap is noting more than a stock market mirage created to suck in low-informed investors into a massive value trap. If anything, Apple is a short not a buy at $414 a share. Expect it to steadily decline over the next year as more and more investors realize that the growth will disappoint to the downside.
And remember--those stock buybacks are nothing more than a waste of shareholder money. Buying back stock at inflated prices when earnings are declining is a recipe for disaster. I pity anyone owning Apple (e.g Greenlight Cap and about a billion other hedge funds). The Apple Titanic is sinking, better abandon ship before the whole thing sinks and there wont be enough lifeboats for everyone.
Black Swan Insights.
Apple reported earnings last night which beat already lowered expectations. Little surprise. Under-promise over deliver as usual. However, guidance was very poor. That has not stopped the usual Apple groupies from proclaiming that Apple has become a value stock with a growing dividend and share buybacks. This is completely false.
On the surface Apple appears to the layman cheap. Compared to 2013 earnings expectations, Apple trades at a 9 P/E and a forward P/E of 8.3. What more could a value investor want? The reason that Apple is trading at a low valuation because everyone expects earnings to decline in the future. This is a key aspect which most investors fail to realize. When a non-cyclical stock trades at a P/E of lower than 10, the market is expecting declining earnings--analysts just have not realized this yet. In fact the market is expecting a sharp decline of at least 20% compared to analyst's 49.00 in earnings expected for FY 2014. The concept that Apple is cheap is noting more than a stock market mirage created to suck in low-informed investors into a massive value trap. If anything, Apple is a short not a buy at $414 a share. Expect it to steadily decline over the next year as more and more investors realize that the growth will disappoint to the downside.
And remember--those stock buybacks are nothing more than a waste of shareholder money. Buying back stock at inflated prices when earnings are declining is a recipe for disaster. I pity anyone owning Apple (e.g Greenlight Cap and about a billion other hedge funds). The Apple Titanic is sinking, better abandon ship before the whole thing sinks and there wont be enough lifeboats for everyone.
Black Swan Insights.
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ReplyDeleteApple is a overvalued over hyped over recommended stock.
ReplyDeleteGreat material
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