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

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.