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.
