Apple (AAPL) was on the sort of bull run most companies dream of over the last year. From early June of last year to earlier this month, the price of shares in the Cupertino, CA company nearly doubled, a run powered by tremendous sales for the iPhone 4S and the new iPad as well as the announcement that the company's massive $100 billion cash pile would be set to work with a 1.8 percent dividend. Apple powered its way into the top spot as the most valuable company in the world, passing Exxon (XOM) and continuing on until it was more than $100 billion higher in market cap than the oil giant.
Since April 10th, though, Apple has been slowing down. Shares are off 10 percent over that period and have raised some questions about the company's immediate future and whether or not Apple's bubble is about to pop.
Technical Data Less Than Promising
One key technical mark came for Apple on Monday morning as the company's share price dipped below its 50-day moving average for the first time since December 20th. Shares bounced back as the day wears on and hover right around that mark, but crossing the 50-day SMA is the sort of moment that technical analysts would point to as a sign that the recent downturn is more than just profit-taking. Now, on the eve of Apple's 2012 Q1 earnings report, more serious questions about the stability of the company's future are starting to bubble to the surface.
Will Earnings Slow Down?
It's worth noting that Apple, despite its massive uptick over the last year, Apple still isn't as expensive a stock as one would think. The gains have largely been powered by massive earnings, and the company's Forward P/E remains at 11.24 and its PEG is at 0.90. If growth projections prove accurate, the company should continue to be worth its current price and more in the near future.
However, the naysayers would point out that in order for Apple to continue growing at the pace it has laid out in recent history, it will require the company to continue innovating at a rapid rate. Apple essentially created three major markets in the last decade; mp3 players, smart phones, and tablets; and then went on to dominate those markets. As such, in order to remain in its lofty position, Apple may have to continue innovating new products that create the same level of excitement as the iPhone, iPad, and iPod; a task that could become increasingly difficult with the passing of Steve Jobs.
"It’s a toy company. A toy company can’t be the U.S.’ most valuable company for long–that only happens in humorous SF and ‘Willy Wonka’ style stories," writes Clem Chambers on Forbes.com. "I love Apple products. I have many and they are toys. Toy companies do not have the kind of robustness necessary to keep high valuation for long and they have a history of explosive success and sudden falls. The craze of the moment is great for a stock price, but it is fragile. The next novelty is hard to find. Apple’s ability to find hit after hit is the miracle that has made its stock price what it is; one John Carter-style flop and the dream ends."
What will Tuesday Bring?
Now, the sharks could be circling as Apple's shares have taken a hit and concerns about slowing sales of the new iPad have some thinking that Tuesday's earnings report will not blow anyone out of the water. What's more, the company's also dealing with looming questions about the stability of iPhone subsidies that have been contributing to the stock's decline.
“Broadly speaking, we believe that Apple shareholders have benefited from the growth of the iPhone while services providers and other handset OEM shareholders have not,” wrote BMO Capital Markets analyst Keith Bachman, predicting that this “will not continue for perpetuity.”
However, many analysts are still confident that Apple's only undergoing a short-term correction and that, long term, the company will still keep growing.
“The stock would have to get below a new monthly low [of $516 a share] to think we’d really weaken,” said Greywolf Execution Partners chief technical analyst Mark Newton on CNBC. “Overall there are still a lot of bullish reasons technically to get involved.”
Either way, Tuesday's earnings report will be a major factor in whether or not the stock will rebound or continue to decline. While most expect the report to be a strong one, the question of how strong it needs to be to reverse the current trend persists.
“They’re going to beat, but the question is what the beat is going to look like,” said Channing Smith of Capital Advisors Growth Fund, on CNBC. “Over the last week, earnings estimates have risen well over $10 and unlike past announcements, we’re seeing a lot of upgrades going into the announcement and that makes us cautious.”
Either way, the longer term future for Apple seems somewhat strong, regardless.
“We’ll be looking for the guidance on what the future looks like [for Apple],” said Kenny Polcari of ICAP Equities. “I’d wait until the stock moves down to the $500-level where there’s support to jump back in.”
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