Apple stocks back to reality

Since they jumped to over $200 recently, Apple stocks have been sliding back down to be around $140. A stark contrast to what the overly exuberant analysts were predicting at the time of a mid to high 200's target price. Reading some of the news reports it is interesting ot see those same analysts scramble to explain why their predictions did not come about. These excuses seem to revolve around the fickleness of the holders of the stock rather than admitting that they were making highly speculative statements.

As I stated in my earlier piece on Apple's stock price, the fundamentals were just not there to justify the size of their share price. With a P/E ratio that stretched, the whole scenario was holding on very delicately. In these situations it only requires the smallest amount of uncertainty to break. In this case it was probably a combination of the lower than predicted sales of iPods and the potential of a consumer slowdown. The share price did not crash, it just came back to a more believable level.

This is a valuable lesson for those of you that work in a business environment, ignore the fluff and focus on the fundamentals. It is easy for people, especially sales reps, to build a convincing argument for an exuberant position. If you focus on the fundamentals it is possible to put these things in context though. In the case of stocks, the fundamental is what the company needs to do to earn its market value. If they are a growth stock there needs to be definitive and believable growth projection that justifies the multiple they trade at.

If you are putting in an IT system, you need to focus on what is the real cost savings or productivity improvements this system will provide. If they are not less than the cost of the system, then what is the point of buying the system. I also often see projects running over time or budget because the IT or business team keep adding optional bits and custom tuning to applications to get what they believe will be marginal improvements. Focus on the core reason and make sure that is working as you need and get it implemented. Once people are using it you can then judge what adjustments may be beneficial and whether they are worth the cost.