After peaking at $702 per share on Sept. 19, 2012, Apple (NASDAQ:AAPL) has dropped like a rock to the tune of 40%, putting it in the $425 range.
Ask any five analysts what they think will happen to AAPL in 12 months, and you’ll get five different answers. Just last week, Goldman Sachs (NYSE:GS) removed Apple from its “conviction list” and lowered its price targets, but still maintained a “buy” rating. Contributor Serge Berger, looking through the charts, sees a possible cliff dead ahead. InvestorPlace Editor Jeff Reeves is somewhat bullish on a rebound.
Of course, how we approach AAPL from here will largely be based on your entry point, what your expectations were when you invested, your time horizon. But at this point, some of us just need to slap a number onto this investment.
I think a return to $500 is certain, and for my investment dollar, I’d personally like to see a target price of $550 — or a roughly 30% gain from where we are now. And we could see it …
iPhone and iPad revenue growth trumps last year’s. iPhone sales were a record 47.789 million units (about 29% growth) and iPad sales rose to 22 million units (about 48% growth) in the quarter ending Dec. 31, 2012. Apple also chipped away at Google‘s (NASDAQ:GOOG) virtual hegemony in smart phones, gaining nearly 4% of market share according to comScore. However, the market crushed Apple in response.
Apparently, investors have gotten to the point where they’re scoffing at growth rates in excess of 20% across the board. However, given the bleeding in the stock, investors might be actively searching for a reason to bid the stock back up, so even incremental improvement over 2012’s growth rates should be viewed in a more positive light.
Apple TV becomes a hit. The company recently provided the FCC with a redesigned version of its existing Apple TV streaming device.
However, the best next way for the company to find its way into the home might be the Apple HDTV set venture — one of the late Steve Jobs’ brainchildren. A 60-inch Apple TV is expected to arrive by the end of the year, retailing for between $1,500 to $2,000 per unit. The company will have to find folks willing to shell out that kind of money just to … well, to watch TV. Promisingly, though, the anticipated bells and whistles include mini-TVs that can be set up around the house to share what’s on.
International growth continues. Apple currently runs 250 stores in the U.S., from mall operations to giant standalone centers. However, just as important is its footprint overseas — the company opened 10 more international locations last quarter to bring its total to 140 stores in 12 countries outside the U.S.
The stores are delivering killer margins on expanding revenues, including 67% sales growth in China last quarter. It’ll need more of the same there and in its other markets, as the U.S. is becoming increasingly saturated.
Analysts acknowledge that Apple’s trailing P/E of 9.6 is not only anemic, but just plain short-sighted. I get that the company might not pump out torrid revenue and earnings growth in the next year or two, and I suspect more than a few analysts are still miffed about getting burned on previous years’ understated forecasts. But a consensus estimate of $49.64 in 2014 is 12% better than trailing earnings and gets you that 9.6 forward P/E. You’re telling me Apple — which has the cash to make a substantial dividend move or buyback — won’t be able to convince investors to pony up $11 per share for every dollar in earnings (getting us to my $550 figure)?
The world is gunning for Apple: Apple as a physical smartphone producer is the dominant brand in the U.S. market with 39%, well ahead of Samsung‘s (PINK:SSNLF) 21%. However, as an operating system, it’s actually behind Google’s Android platform, which is offered not just in Samsung phones but other devices for a total of 51% of devices in service, according to comScore. Also, Samsung’s products are enjoying an increasingly favorable reputation here, are the rage in Europe and China, and are oppressively priced up-front unless they’re heavily subsidized by telecoms like AT&T (NYSE:T) and Verizon (NYSE:VZ). As people balk at paying big bucks for iPhones, Samsung and others — including Nokia (NYSE:NOK) and Blackberry (NASDAQ:BBRY) — are happily waiting in the wings.
On the tablet side of the street, products by Samsung, Amazon (NASDAQ:AMZN) and Google are becoming increasingly popular, and Microsoft (NASDAQ:MSFT) is making a push with its Surface. According to the latest IDC study for the fourth quarter of 2012, “strong competition in the market led to Apple’s market share declining for a second quarter in a row (down to 43.6% from 46.4% last quarter). No. 2 vendor Samsung experienced 263% year-on-year growth, shipping nearly 8 million combined Android and Windows 8 tablets during the quarter to grab 15.1% of the market, its same market share total from the previous quarter.” Meanwhile, Amazon increased its market share to just over 11%, up from just over 8%, with year-over-year growth of over 27%. The iPad isn’t dead, but this trend bears watching.
Back to the dividend: As I alluded to before, Apple can do a lot of good with either a big buyback program or a substantial dividend hike — most investors probably would prefer the latter. Conversely, though, continuing to sit on that cash hoard will frustrate investors, making that $550 mark more dream, less reality. And I think anything south of a 15% hike — which would bring the dividend to $3 per quarter, or a 2.8% yield on today’s prices — could have Wall Street shrugging its shoulders.
I am in this for the long-term, which is why I got started several years ago. Though I still look at that $700 mark and think about what could have been, that time is over, and now it’s time for the real blocking and tackling. Apple’s most realistic path to resurgence is steady growth through expansion in both geography and products, and a dividend increase (and suggestions of more ahead).
Of course, it’d also help if investors’ mind-sets became a little more in line with reality. Apple might not double its earnings ever again, but a nice payout, a market leader and expected double-digit profit growth sure shouldn’t warrant single-digit P/E punishment.
The bearish hysteria will subside, and when it does, investors will realize Apple’s better than it’s been getting credit for. That should mean a return to the $500 mark — and hopefully higher.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing, he was long AAPL, MSFT and VZ.