Monday, April 22, 2013

7 Reasons Apple Is Worse Off Than You Think

1. The stock is expensive.   Clusterstock’s Henry Blodget argues that Apple stock is cheap since he claims it trades at a P/E of 9 — less than the market average of 15. Moreover, he argues that if Apple just keeps generating cash at the rate of $40 billion a year, an investor could buy the company today for $390 billion, pocket its $150 billion of cash and just wait six years to get Apple’s business ”free and clear, for nothing.”

But both of these arguments only make sense if the assumptions about Apple’s future financial performance are correct. For example, if you believe that a stock is cheap when its P/E is less than its earnings growth, then Apple is very expensive. That’s because its earnings shrank at a 17% rate in the first quarter of 2013 and are expected to fall nearly 1% for all of 2013. Nor is it clear how these trends will yield $40 billion a year in cash flow.

2. Apple has nothing new in the pipeline.  Clusterstock’s Blodget writes that “excitement should begin to build about the iPhone 5S, the new iPad Mini.” He admits that these products are nothing new. Moreover, based on the bored reaction from my students last fall to the iPhone 5′s announcement, many may shrug should Apple release these “new” versions of old products.  Many will conclude that there is no compelling reason to replace their current iPhones. Or, perhaps they will buy the latest offerings from Samsung and other Android makers….

3. Without Jobs, Apple’s management has lost the ability to innovate.  The absence of innovative products from Apple since Jobs died is compelling proof that his team is not able to take over where he left off. In fact, the fiasco with Apple Maps shows that the team can do harm — rather than merely fail to innovate….

Wait…there’s more.  Find out all about them at

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