Apple Inc. (NASDAQ:AAPL)
reported record sales of $54 billion and record profit of $13 billion. For this wondrous feat the stock has been rewarded by losing as much as $50 billion in market cap in after hours trading. There are only two streets in the world where such a thing makes sense. The first is Wall Street. The second? Bourbon Street.
This is a stock spanking unlike any publicly traded discipline I've ever seen.
Companies have been punished before
You may be quick to point out that it's not uncommon for high flying companies to have their stock price drop even when reporting sensational earnings. One need look no further than Chipotle Mexican Grill, Inc. (NYSE:CMG)
in July of last year, or to BP Prudhoe Bay Royalty Trust (NYSE:BPT)
in August. Both were punished more than Apple with Prudhoe Bay losing over 20% in stock price over the course of about a week. Chipotle lost that much in a day.
Chipotle was a different situation than the situation that Apple is going through right now. Chipotle's P/E ratio was over 60 at the time. That is tolerated for a time on the stock market. But then in July came the terrible news for the stock: the company's growth was slowing. The high valuation couldn't take it. Shares fell. Nowadays Chipotle looks to be more fairly valued given their continued growth and forward P/E at around 28.
Prudhoe Bay was an interesting case. An article
was published suggesting that the market cap for this stock was higher than available money for payouts. This bizarre piece of information spooked investors. They later started trickling back and now the stock is trading for about the same price it was before the incident. Investors came back for good reason. While no one can be positive how much oil is there, even pessimists
estimate there is oil here through 2025 (Likely there is much more oil there). That gives you plenty of time to get into this high paying royalty trust.
We've seen stocks drop before, but I can't think of a time when a company with Apple's growth, size, and valuation have ever been punished like this.
What is happening to The Great Apple Inc. (AAPL) Sale is similar to what happened to Priceline.com Inc (NASDAQ:PCLN)
back in August. Priceline was slammed 17% in one day when its guidance fell below analyst's estimates. If you recall, Priceline's revenue for that quarter was actually up
20% and net income was up an impressive 43%. Was that really bad news for investors?
that the market did all of us long term investors a favor on that day. That was the day for those of us who had been waiting to get in. I suggested that it was the time to buy. Shares are up 19% in the five months since then. It's heart wrenching for the people who were already in. For those of us who were waiting to get in it made our hearts jump. This was good news for us.