Apple's share price has not had any correlation to its fundamentals for the last few years. If you were to compare its P/E ratio to that of other tech companies out there (Amazon's is 3628) it would technically be undervalued even at its current price.<p>That said, most of the volatility comes from all the prop trading firms trying to turn a profit. AAPL is considered a bullish stock amongst fund managers and is often used to hedge against other riskier positions in the market. Often times big dips in Apples stock can be attributed to profit taking (especially around this time as we finish up for the year and get nearer to the end of an American financial quarter – gotta look good on the books to the get Christmas bonus) and margin calls on bad trading days. You’ll notice a dip in the afternoon of any bad trading day as prop firms start getting margin calls on their failing positions and have to sell to cover their losses.
This renewed focus on market capitalization (and "valuation") has gotten a bit absurd. Market capitalization is an _approximate_ measure of _implied_ whole-company value. Approximate because we don't really know the number of shares outstanding, and whether you should use shares outstanding or fully-diluted equity, or heck, fully-diluted equity net of cash, depends on the application. It's also approximate because the share price only reflects the last trade or the inside quote. But that is only the price that _somebody_ (the most aggressive buyer or seller) was willing to pay/accept; if you wanted to buy or sell lots of shares (e.g. a whole company) obviously you wouldn't get the inside quote for all of it.<p>Most fundamentally, from a corporate perspective it's not like the company "loses" anything on its balance sheet when its shares change hands at a particular price. The share price does affect the company's cost of capital, but not so simply and not directly. Apple in particular is not going to need cash any time soon.<p>The more relevant measures of corporate health are the traditional revenue, net income, free cash flow, etc. It's true we don't get updates to those quantities every microsecond but they are still more important.<p>To the extent a 6% drop might reflect somebody somewhere with groundbreaking secret information that casts Apple's future income in doubt who has decided to place a big bet, yeah, it's possible, but it's too soon to tell and we don't really know what it means. (As Steve Jobs said, "Stocks go up and down.")
The key risk for Apple is what its future earnings will be. Given that its current earnings dwarf anyone else, one must believe they will be able to be maintained which is equivalent to a bet that the iPhone will continue to be sold in high quantities with high margins.<p>In the last year Apple generated $55B in pre-tax earnings. They had $80B in revenue from the iPhone at a margin of >60% or $48B. They sell the iPhone for an average of $642 while the Nexus 4 retails at $299. If the iPhone dropped to a wholesale price of $399 ($100 pricing advantage), it would reduce pre-tax earnings by $30B (55%). If iPhone sales double that would offset about 60% of that decline.<p>Another way to ask this question is what total mobile phone profits will be in mature market. If there are 7B phones replaced every 4 years, that implies 1.75B phones sold. Cost will likely fall so revenue could be 437.5B. If Apple can capture 30% of that with margins more similar to the Mac (~30%), this suggests even if Apple continues to make better products and can maintain significant market share, they'll earn 20% less from the iPhone than they do today.<p>Of course Apple has an extraordinarily successful iPad business but its margins are much lower than the iPhone and as an unsubsidized device will likely face greater pressure.<p>The questions to ask is evaluating Apple are: When will their earnings peak and by how much do will they fall before they reach an equilibrium. While this may be anathema to some and I admire what Apple has achieved, large economic profits cannot exist in the long run in a competitive market. Why is a longer discussion but I challenge the reader to pose a counterexample.
Were there any rumors/news/anything today that triggered the movement? AAPL is behaving more like a penny stock than the $500-billion behemoth it is.<p>It's also interesting to see how its P/E is lower than Microsoft's now. Given the generally lukewarm reception towards Windows 8 / Surface, you'd think more investors would be fleeing from MSFT. I sold my MSFT shares and went short last month after buying (and returning) the Surface RT.
Taxes on the wealthy and their capital gains are going up! Between now and the end of the year I believe you will see a LOT of selling from people and institutions holding large positions. Regardless of whether or not we go over the 'Cliff', capital gains tax rates will be going up and lots of selling will occur that drives down stock prices.
Investors are selling Apple stock in anticipation of changes in U.S. capital gains and other taxes.<p>Pretty much everyone who made it to the $700 valuation did so on an early, lucrative buy. It's all taxes.
The apple selloff is all fiscal cliff hedging:<p><a href="http://taxfoundation.org/blog/fiscal-cliff-capital-gains-and-dividend-tax-increases-pose-greatest-threat-economy" rel="nofollow">http://taxfoundation.org/blog/fiscal-cliff-capital-gains-and...</a>