About 3 weeks ago, I took a long position on Apple against online jeweler “Blue Nile”. I got a few comments both on that post and on Twitter about the stock being overvalued and how it was time for it to tank. Like any other investor, I am often wrong, that is why I use stop losses strategies on all of these trades. That being said, I don’t like the argument about a stock like Apple going to decline simply because it has gained too much.
Apple might go down, but not just because it went up too quickly. I know, many technicins out there simply look at charts, but you do still have to consider the fundamentals right? Apple continues to trade at a reasonable P/E ratio despite exploding sales.
Why are sales exploding?
Apple has been “In” for a few years now and its products have been desired all around the world even in difficult economic times. The more surprising trend is that this tendency seems to be “exploding” instead “fading”. Here are a few examples all taken within 3 days… and there are probably many more examples.
-Yesterday I come into work and my two colleagues were discussing buying an Ipad. One of them went to an Apple store the previous night to buy one. He had to wait in line to finally be told that none were left. The option he took was to put his name on a list. When the store receives new Ipad’s, he will be contacted and will have 24 hours to come purchase it. There are thousands of people in front of him on this list and yes he did ask if other nearby stores had any. They don’t. He asked for a time estimate but they did not know. They said it could be 2 weeks but right now, Apple is not able to produce fast enough to keep with the demand. My other collegue decided to also get one and ordered it on the website…. We are talking about a product that costs over 500$ but it’s selling as if it was a hot bun.
-There is also my father, who had ordered his Ipad over a week ago. He received and showed it off. Everyone was impressed. Not only did it look amazing, but even better… it is almost impossible to get right now because of the shortages. It is as if buying an Ipad was finding a treasure. Except you are paying a hefty price to Apple…
-Oprah Winfrey made the news yesterday because she made an incredible gift to the employees of her magazine giving them 10,000$ and an Ipad to thank them for their hard work. This type of news is not only good advertising for Apple, it also shows how powerful the brand is. To give 10,000$ was not enough, Oprah Winfrey wanted to give something that had meaning and that everyone on her staff would want to have. The Ipad was her choice. Not a book, not the Kindle, not a phone, but an Ipad. That speaks volumes
-Also this week came the news that not even 48 hours after starting selling the Iphone 4, both Apple and AT&T suffered major system failures and had to stop selling because of those failures but also because they were running out of stock. Had they missed the boat? They actually sold 10 times more phones than expected… amazing. A Morgan Stanley analyst even predicted that Apple would have 100 million Iphone subscribers within 18 months… Just this morning, Softbank, who deals with Iphone orders in Japan also announced it was halting orders as it is unable to keep up with demand. This is a worldwide phenomenon…
What does all of this mean for Apple?
Of course, what everyone has figured out is that this means tons of revenues in the coming months for Apple. But what many have not thought about is that revenues will come for a long long time also. Generally, Apple users remain with the product and also purchase books, music, apps, etc. All of these products cost almost nothing to Apple who simply gets its cut every time a sale is made. Not a bad business model hey?
Where is Apple’s stock headed
Apple has many opportunities ahead as its user count continues to increase. Can you imagine if the company can start brokering ads to display to those 100 million users? The possibilities are almost endless and honestly I think that the stock will continue to rise despite the fact that it is already reaching high’s.
What are your thoughts?