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A lesson in how not to value Apple
作者: Andy M. Zaky    時間: 2010年08月13日    來源: 財富中文網
 位置:投資理財         
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Many Wall Street analysts have been consistently wrong in predicting short-term prices for Apple shares, suggesting that investors should shift to a long-term focus.





????Until recently, I've been silent on the issue of Apple's valuation because I feel that such an analysis could be misleading when improperly used to try and forecast Apple's short or intermediate term price action. Far too many people are betting that Apple will see $300 or $400 a share by this January owing to its strong fundamentals. The latest to up the ante is veteran Apple analyst Charlie Wolf of Needham, who raised his target from $280 to $375 on Monday.

????While I agree that Apple (AAPL) is worth a lot more than what is reflected in its current market price, a long-term viewpoint is the only practical way to rely on fundamental analysis as a basis for investment decisions.

????On August 20, 2008, renowned Apple analyst Gene Munster of Piper Jaffray argued on CNBC's Fast Money that technology stocks generally tend to outperform in the fall and winter months, and that Apple's cheap valuation meant that it was time to buy the stock. Munster had a famous $250 price target on Apple at the time. In fact, nearly every analyst on the street had $200 price targets on Apple citing exceptionally strong "fundamentals" as a basis for their recommendations.

????Yet, 30 trading sessions later, Apple dropped from $175.84, when Munster and several hundred other market participants were touting the stock as being "undervalued," to a close of $89.16 on October 7. Swept up by the market's reaction to the financial crisis, Apple wouldn't see $200 a share for almost 15 months. Nearly every analyst on the street flipped 180 degrees on Apple cutting price targets, estimates and citing valuation concerns as a basis for downgrading their buy recommendations to neutral and sell.

????RBC analyst Mike Abramsky cut his price target from $200 that August to $125 in late September. Morgan Stanley's Kathryn Huberty cut her price target on Apple two weeks in a row from $190 to $179 on September 22, 2008 and again from $179 to $115 a share just one week later. By mid-November, Apple stabilized in the $80 to $90 a share range. Even long time Apple enthusiast Jim Cramer noted on several occasions during this period that he couldn't recommend Apple at $90 a share.

Strong fundamentals, weak market

????Meanwhile, Apple reported one record quarter after another, and it even posted 125% earnings growth in the September quarter of the financial crisis. The iPhone deferred revenue system masked Apple's true earnings power, making it very difficult for fund managers to accurately valuate the company during the post-crisis era. And though the company was undervalued, it didn't stop the market from pricing the stock at a 70% discount to its theoretical value.

????By the end of October, I published a detailed analysis demonstrating that Apple was likely the most undervalued large cap tech stock in the sector. I argued against long time Apple enthusiasts that despite what the investment community might hear from analysts, Apple was a strong buy at $80 a share. I made several arguments as to why the market would bottom in March and that Apple would see $230 within a 2-year period.

????Yet, instead of seeing opportunity in Apple's cheap valuation, Abramsky downgraded the stock to underperform in January 2009, and lowered his price target to $70 a share. The market bottomed just a month and a half later, and Apple significantly outperformed the market posting nearly 250% gains in the next year and a half – more evidence that fundamental analysis is only valuable when used to make long-term predictions.

????So what exactly did Abramsky's clients gain from this analysis? Abramsky, like nearly every other analyst, was literally advising clients to buy in the $180 a share range and sell at $80's a share. Is it any wonder why analysts continue to be the laughing stock of Wall Street?

Lessons from the numbers

????The lesson here is not that so many got it wrong ahead of and during the financial crisis, however. Rather, what investors should take from this history lesson is that price targets are often good in theory but fatal in fact. Attempting to put intermediate or short-term price targets on any stock based exclusively on fundamental analysis is really an exercise in futility.

????And before you dismiss the financial crisis as merely an outlier, think again. Apple's stock has collapsed by over 30% on at least four separate occasions over the past few years. See here.




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