Crunch time as investors punish Apple

The share price fall has been savage, write Nathaniel Popper and Nick Wingfield.

Where's the old love, Apple?

Wall Street has turned viciously on its one-time iDarling. The rout in Apple's share price - it fell nearly 2.7 per cent on Thursday, bringing the damage since late September to 44 per cent - has many wondering when, and where, all this will end.

The answer, of course, is that no one really knows. Yes, Apple is slowing, as companies inevitably do. But it remains enormously profitable and the envy of corporations worldwide. And yet the company's decline in the sharemarket has been so swift and so brutal that the development has begun to change the way investors view the company.

It is a remarkable turn in one of the standout sharemarket stories of recent years. Only seven months ago, Apple's share price raced above $US700, making it the most valuable company on the planet. By Thursday, the stock had sunk to $US392.05, closing below $US400 for the first time since late 2011.

The cause of Thursday's decline was news this week of a glut of audio chips at one of Apple's suppliers, prompting concern sales of iPhones might fall short of expectations.

But that was just one more bit of downbeat news in what has been a downbeat few months. All told, $US290 billion has been wiped off Apple's value since September. It might seem difficult to believe, but Apple now ranks among the biggest losers in the market over the past seven months.

Yet the company sells more iPhones and iPads than ever. It is expanding its global reach. And it is making so much money that it has been having trouble figuring out what to do with all its cash. Speculation is rife that Apple might pass some cash to shareholders in the form of a higher dividend.

On one level, the Apple story is a common one on Wall Street: What goes up also goes down. As Apple's stock price soared in recent years, some pointed out that the company's sales could not keep growing - and its share price could not keep rising - at that rapid pace forever.

"Over-exuberance on the upside leads to herd behaviour and panic during the correction," Avanidhar Subrahmanyam, a professor of behavioral finance at the University of California, Los Angeles, says. "People just panic and the stress hormone kicks in."

Apple looks cheap by the most popular way of gauging a stock's value, the amount of profit it generates for each outstanding share. Investors are willing to pay about $US15 for a dollar of profit for the average S&P 500 company. But for Apple, they will pay less than $US9.

At its current price, investors are betting Apple will grow more slowly than the average US company. And they are ignoring the enormous pile of cash Apple has built up, which it could hand out to shareholders tomorrow if it wanted.

The cash, and Apple's apparent inability to find a use for it, has taken some of the blame for the stock's recent performance.

Toni Sacconaghi, an analyst at Bernstein Research, says if Apple develops a clear plan to use some of its cash to pay dividends to investors, it will help the company's shares, perhaps lifting them 10 per cent or more. But that will not return Apple shares to their glory days. He says the bigger problem bearish investors see with Apple's shares is more straightforward: growth is stalling.

During the fiscal second quarter that Apple will report on Tuesday, Sacconaghi predicts the company will announce an 18 per cent decline in net income, as less lucrative products eat into its profit margins.

One thing is certain: the shift in sentiment has been a big change for Apple bulls such as Gene Munster, an analyst at Piper Jaffray. He still sees a host of opportunities for growth ahead but says it is no longer easy being an Apple bull.

"It's like getting a beating every day coming into work," Munster says."Investors are so negative, they want to take it out on somebody. I feel like I end up being that guy."