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Tuesday, January 24, 2012

realistic on AAPL

Last night, Cramer gave two sides of the Apple story. A pure technical assessment, and his fundamental assessment. The issue I have with the pure technical assessment, is that it is lacking. Looking at the  pure price action pattern is wrong this go around because of Apple's valuation.

When I highlighted the potential downside to Apple, I was just trying to be a good risk manager. But the realistic scenario is that AAPL will trade around a trailing PE of 14 after earnings.  A multiple of 14 is where it has been trading for the better part of 6 months.  (Also, the price action that led to trailing multiple of 13, under the current product growth trends, suggest a bottoming of the multiple at 13.)

Around 14 is the highest probability multiple the market will assign Apple.  If AAPL produces an eps of 10.07 its trailing eps will allow for a stock price of 437. If AAPL produces an eps of 11, its trailing eps will allow for a stock price of 450.

Basically, translating the above gibberish talk, Apple should see a price action between 437 to 450 after they report.

1. Also, keep in mind, AAPL should have never seen a run up into earnings, but the assisted negativity from the media, allowed it to see an exaggerated decline. Basically its been flat for 3-4 months.

2. Looking at a stock via its multiple is no different than a statistician looking at data points through a different perspective to find the valid pattern in a large data set.

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