Apple Inc. (NASDAQ:AAPL) had been getting a lot of positive momentum leading up to the launch of the iPhone 5, as the stock reached an all-time high of $705 per share, making the company the most valuable in the history of world stock markets based on market capitalization. While the stock has fallen off about 10 percent in the last four weeks due mainly to complaints about Apple’s mapping system and delays in the supply chain, one analyst makes a claim that Apple Inc. (AAPL) is actually still a “sell” target – and may still be 20 percent overvalued.
A $500 Apple Inc. (NASDAQ:AAPL) stock?
Analyst Wim Lewi wrote an extended piece making his argument that Apple Inc. (NASDAQ:AAPL) could very well be still highly overvalued, and he dissects several reasons for his thesis. He prefaces his arguments by writing, “I believe investors have focused too much on Apple’s sales growth as the driver for stock appreciation. In my previous article, I explained that margin trends are underestimated. I also believe that capital investment needs are completely ignored.” Why is this important? Lewi cites “the dire state of the Apple supply chain.”
Lewi suggests that huge growth by Apple Inc. (NASDAQ:AAPL) in the last several years has squeezed its suppliers, who have continued to bid for being Apple component providers, and they are not seeing the returns on their investments that they had before. Some companies, he estimated, were using 40 percent of their sales on capital expenditures in order to provide top-of-the-line quality, and suggest that Apple Inc. (AAPL) may need more capital on hand to help out the suppliers.
Lewi goes on by writing, “Apple 1Q12 balance sheet reveals USD 7.8 billion of tangible fixed assets such as buildings and machines. Its working capital of inventories, payables and receivables are minus USD 8.1 billion. Apple owes its suppliers USD 18.9 billion. Hence, Apple is completely financed by its suppliers and has no capital invested and unlimited ROI. This situation is not picked up by sell-side research.” He went on to write several more paragraphs addressing various issues within the supply chain for Apple Inc. (NASDAQ:AAPL) products.
How will this analysis be read by other market watchers, and more specifically investors in Apple Inc. (NASDAQ:AAPL) stock, like billionaire fund manager David Einhorn of Greenlight Capital? The coming weeks and months will tell, as Apple Inc. (AAPL) releases several new devices in time for the holiday shopping season.