Apple Inc. (NASDAQ:AAPL)’s share price is bordering perverse at this time. It no longer correlates to financials or even legitimate business prospects. The share price fluctuates on a day to day basis as more of a score board based upon the number of positive or negative blogs, rumors or Wall Street analyst downgrades versus upgrades.
Never mind that the opinions of analysts are historically erroneous. Last week an analyst at Jefferies downgraded assigning a price target of $420 while Apple was already in the $430 level. The downgrade scared the price down approximately $9.00 lower on Tuesday. It begs the question of –why- would a firm bother to come out with a downgrade with a price target about half of a percent below the already obliterated share price? They seem to be a little late to the party. What value does such a late downgrade bring to their firm’s clients? It would seem as they are playing the game of piling on.
How did Jefferies determine that a company that has already declined so substantially in the past month does not already reflect possibilities like a possible delay with the new iPhone 5S due to suppliers having trouble with the new casing colors?
After the substantial decline heretofore, how did they arrive at the number $420 being the new value for Apple Inc. (NASDAQ:AAPL)’s share price? Why not $390 or $418 as arbitrary price targets? On top of that, Jefferies indicated there might be a “25% chance of the delay.” Why 25%? And how long might that delay be, 2 days? 14? And how much will that possible delay ultimately cost Apple?
It seems as though these firms are piling on these downgrades in order to create a buying opportunity for themselves. Call me a cynic but I suspect we may be hearing a surprisingly positive tone from a slew of analysts in a few more weeks.
Possible manipulation aside, I believe CEO Tim Cook has demonstrated a degree of negligence in defending against such attacks. I can appreciate Warren Buffett’s opinion that Cook should ignore David Einhorn and “focus on running the company.” The stock is –not- the product. However, the CEO does have a fiduciary responsibility to increase shareholder value and he should be protecting the share price against the rumors and assaults from the outside when it gets to this magnitude. That comes with running a public company.
I’ve said before that raising the dividend and especially splitting the stock is not going to change the intrinsic value. I said that those actions border on gimmickry. However, much of Apple’s recent decline is clearly based upon the gimmickry of analysts; so if credulous “investors” have dumped or shorted the stock based upon such prosaic analysis, perhaps it is time to satiate the ignorant with some simple moves like a stock spilt and/or dividend hike.
By not defending against such cheap “analysis” that essentially evaluates the entire enterprise as worthless when factoring in cash, intermediate term securities and cash flow – Apple Inc. (NASDAQ:AAPL) is establishing low “water marks” that create a larger spread to traverse when the “sky is falling” sellers realize this is much ado about nothing.
Since the equations of their analysis really feature little more than the multiplication of negative blogs + a few charts, when the reality sets in, they may find themselves struggling just to get back to where they were a month ago instead of where the legitimate share price –should- be based upon historical multiples of earnings, assets, and future prospects.
That’s where the moves to defend and market the stock should make up for the difference. Fight the intangible negative conjecture with the potential positives within their immediate control (not hype). I don’t think Steve Jobs would have stood by to allow for this continual assault to damage the share price. Aside from splitting the shares or hiking the dividend, I believe a visionary like Jobs would be out there in the media elucidating upon the vision for the future and instilling confidence and enthusiasm. That is different than guidance on how much one believes they may achieve in sales over the next quarter or year for particular products.
Jobs was the ultimate carnival barker (in a great way) and that can make an enormous difference when a large percentage of the share price of any company is a form of “good-will.” Currently, Apple Inc. (NASDAQ:AAPL) has almost zero “good-will” left in the currently preposterous share price.
As I wrote in my Feb. 6 blog, it is rare to find an engineer like Jobs with the visionary genius and the ability to convey it so adroitly. I also wrote that Reed Hastings of Netflix, Inc. (NASDAQ:NFLX) is one of the few CEOs alive who currently embodies such traits. One need look no further than the share price of Netflix today to see how far confidence in the vision and leadership of a CEO can take the share price.
The article Tim Cook Negligent on Defending Apple’s Share Price – Price Bordering on Perverse originally appeared on Fool.com.
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