Apple’s Big Run Might Be Coming to An End

For Apple, the great run might be finally over. On Wednesday, Apple closed above $156 the highest price since last September. This recent surge was a result of the company posting a 15% increase in quarterly profit, mainly due to the record sales of their new iPhone 3G S. For those of you know think the good times will keep on coming might want to think again. The last five years have been quite a ride for Apple Investors. This year alone Apple has doubled and over the past five years it has averaged an increase of 56% a year, a significant return. The problem is, it might be time for reality take its turn. Overall, I think the stocks best days are behind them and it’s a risky pick to expect the tech giant to continue to perform. Even though I have always been a Mac guy and agree that Steve Jobs continues to deliver terrific products the numbers don’t add up. Apple once to be this small growing company, however they are now valued at $135 billion. That’s quite an achievement and makes them the 10^th most valuable company in America. The implausible thing to me is for someone to believe that Apple can continue to grow at this rapid pace. If shares were to increase at the same pace it would make Apple be worth $1.25 trillion in the next five years. That kind of expectation is absurd. It would make them three times more valuable than Exxon Mobil. The main reason I doubt apple is that the market is beginning to look saturated plus they are slow being hit with more and more competitive brands. Besides the surge in iPhone sales, the rest of Apple’s products took a step backwards so far in 2009. iPods fell 7% and Mac Computers 8%. Plus analysts expect these numbers to fall another 8% in 2010. To add to this, it seems as if the iPod doesn’t have the same draw it use to, plus many people are refusing to pay hundreds of dollars for the iPhone Touch when it is just a sub par iPhone. Apple is currently being attached on all fronts within the computer sales business. Dell, Microsoft, and HP are all heavily invested in promoting the PC product and have a goal of swaying away future laptop owners with the cheaper price point. So now lets take a better look at Apple’s surging quarterly results. All of the growth came from iPhones and that is the major problem. This now makes Apple a mobile phone stock, which could be a brutal business as they go head to head with Google’s Android, RIMM’s Blackberry, and others like Nokia, Sony, and Palm. Plus to compete Apple will only have to continue to lower the prices, which could take a major cut at their profit margins. Plus there still remains a major worry over Steve Job’s health. He has been absent from major Apple events recently and does not have the same control and influence of the company as he once had. He is Mr. Apple and the reason they have reached the level they are at today. Some might even call him the world’s most successful CEO. Yes Apple has but replacements in place but to think that anyone could top what Steve Jobs has done is wishful thinking.

No Need to Short Apple

This said there is no reason to short Apple. If there is one thing they do great, it is holding onto cash. Apple $42 billion in cash and as we know Cash is King!!! This makes me suspect that Apple might finally decide to offer a dividend to continue to attract new investors. The good news for the company is they continue to grow their brand and attract more lifelong customers. I am a perfect example as I have a Macbook Pro, iPhone, and iPod and can never see myself switching back to a PC. I guess its true in the saying once you go Mac you never go back. Adding to this Apple continue to emerging as a player in the Asia market and currently overseas sales are such a tiny part of their balance sheet that I expect this to be a main attraction and opportunity for the company. Overall though at the end of the day, Apple isn’t the bargain stock that it once use to be. To expect 56% annual returns is naïve and I just don’t see it being a huge growth opportunity that it once was. The debate is not whether or not Apple’s share prices will continue to rise but more to the point that is the risk worth the reward any more.

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