Shares of Apple Inc. skyrocketed after the
company's Christmas-quarter results made it clear that demand for
Apple's products didn't diminish following the Oct. 5 death of
founder Steve Jobs.
But with the stock rising by leaps and bounds so far this year, and with Apple's market value surpassing $500 billion, you might be wondering whether this run can last. (Apple announced earlier this month that it would use some of its cash hoard to pay a dividend of $2.65 a share later this year.)
Analysts contend that it can. In fact, the stock, which was recently hovering at nearly $600 a share, could keep climbing unless one or more of four warning signs emerge. Although none of them is in evidence today, here are some things to watch for.
Empty pipeline: Apple's stock is fueled by the release of new and refreshed products that fly off the shelves, says Shaw Wu, an analyst with Sterne Agee & Leach, a Birmingham, Ala.-based investment firm. Apple launched the third iteration of its iPad in March and is expected to unveil the next-generation iPhone in the fall. Expect a stronger push into television, too. Don't worry until the product pipeline is empty.
Quality crash: Consumers are willing to pay extra to buy Apple gizmos because they are well-made and easy to use. But if the products were to start disappointing consumers, sales growth would decelerate; sales might even fall. That would give Apple's rivals a chance to nab market share, says James Ragan, an analyst with Crowell, Weedon in Los Angeles
Though critics panned the antennas of an earlier iPhone model and labeled the 4S version "disappointing," consumers have considered each product better than the last and have shown their approval by upgrading. If sales slip in the wake of quality complaints, re- evaluate.
Price exceeds growth: Analysts expect Apple's earnings to grow at a nearly 20 percent clip over the next several years. With its price- earnings ratio well below that number, the stock is still cheap. Take a second look when the P/E exceeds earnings growth.
Sales in China fall: China is Apple's next big frontier. The company already sells iPhones there - in fact, its products are so popular that prospective buyers get in fist fights just to keep their place in line.
Apple is now in talks to sell the iPhone through China's biggest wireless firm. If Apple strikes a deal, says Wu, expect another burst of revenue growth.
If the deal falls through or something happens to quell consumer demand in China, Apple's growth might slow, and that might be a signal to sell.
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