Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

The Futility of Apple Inc. (AAPL)’s Fundamentals

Page 1 of 2

It’s been a long six months for Apple Inc. (NASDAQ:AAPL) investors, myself included. Amid the company’s well-documented pullback from its September highs, investors have continued to get cut while trying to catch the falling iKnife.

Even right here at The Motley Fool, we’ve continued to boldly proclaim different times to buy, citing the Mac maker’s rock-solid fundamentals (shown here with approximate closing prices):

Nov. 8, $538: It’s Time to Buy Apple (myself)

Dec. 13, $530: It’s Time to Buy Shares of Apple (Jim Mueller)

Jan. 3, $542: Now Is the Time to Buy Apple (Andrew Tonner)

Jan. 24, $450: Is Apple the Best Buy in Tech? (Eric Bleeker, CFA)

Feb. 12, $468: Why I’m Buying More Apple Stock (Anand Chokkavelu, CFA)

Apple Inc. (NASDAQ:AAPL)How wrong my fellow Fools and I have been so far each and every time, as shares have proceeded to tap a fresh 52-week low of $419 just days ago. Along the way, we have noted that every valuation metric in the book is seemingly at rock bottom, but shares just kept getting cheaper. At that low, shares were trading at just 9.5 times earnings and 6.2 times earnings ex-cash.

AAPL P/E Ratio TTM Chart

AAPL P/E Ratio TTM data by YCharts.

The problem we all share is neglecting the fact that Apple has become a pure momentum stock as fickle traders (both institutions and individuals) pile in and play the swings. Traders, by their very nature, pay little to no mind to fundamentals. After all, if you’re holding a position for only days or even hours, what does it matter that fiscal 2014 revenue is forecast at more than $200 billion?

When emotions are firmly in control, trying to value a stock based on fundamentals can prove to be utterly futile in the short term.

Not-so-sweet emotion
Only when you’re in an environment where emotion overshadows reason does irrationality begin to make a little bit of sense. There’s simply no legitimate way to justify just how far Apple Inc. (NASDAQ:AAPL) has fallen.

To be fair, Apple Inc. (NASDAQ:AAPL) absolutely faces some very real challenges in the near term. Samsung has become a formidable rival through a combination of product breadth, sheer size and scale, wide distribution, and a simply breathtaking marketing budget. Apple Inc. (NASDAQ:AAPL)’s current smartphone strategy of focusing on the high end of the market is hitting a ceiling as saturation within developed markets sets in, leading to iPhone growth deceleration.

Competitors in the tablet market are now starting to gain traction, even as the iPad remains the defining device. Investors have grown frustrated with Apple Inc. (NASDAQ:AAPL)’s unreasonably large cash position, which alone is larger than Intel Corporation (NASDAQ:INTC)‘s entire market cap. Margins may never again reach levels seen in 2012, when gross margin briefly flirted with the 50% threshold — previously unthinkable for a company with substantial hardware operations.

Source: SEC filings. Calendar quarters shown.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!