Writing for CNN/Money, Paul R. La Monica calls Apple the “Rodney Dangerfield” of the technology industry (borrowing from the stand-up comic’s “No respect” punchline). Why? Because despite a strong product introduction with the Power Mac G5 and the huge buzz surrounding the iTunes Music Store, Apple’s stock continues to receive tepid reaction from Wall Street analysts. La Monica’s comments come in a new article entitled
La Monica explained that on a scale from 1 (a Strong Buy) to 5 (a Strong Sell), analyst consensus on Apple stock is a 2.9. “So this is essentially a Hold recommendation which, as most investors know, is a nice way of saying Sell,” he said.
In some ways, the rating makes sense, admits La Monica — Apple’s stock is trading at 60 times earnings estimates and shares have risen 61 percent since the iTunes Music Store debuted. But their equally pessimistic views sure didn’t make sense in April, he notes, “when the stock was trading at $13.35, despite its $4.5 billion in cash and negligible debt load.”
La Monica dismisses criticism leveled at Apple that it’s a niche player in the computer market and suggested that Apple doesn’t need everyone to switch the Macintosh, as long as it keeps coming out with products like the iTunes Music Store for Windows (due by year’s end) and the iPod. “The boost in peripherals, software and services is important, since they have higher profit margins than manufacturing and selling Macs,” he added.
Analysts may be coming around to La Monica’s way of thinking. He noted that analysts’ earning expectations for FY2004 are 35 cents, up 9 cents from three months ago. “Other than Dell, no other hardware company can boast of sales growth [as strong as Apple’s],” said La Monica.
Another telling sign, according to the CNN/Money writer, is that Apple’s stock price hasn’t risen as a result of “short squeeze rallies,” which happen when investors buy back shares they’ve borrowed and then sold immediately. This has happened to other tech stocks this year, and it’s “typically a negative indicator,” since it suggests that professional investors are expecting the stock’s value to drop.
“Of course, investors should be more wary of the stock now since it has enjoyed such a sizable spurt in a relatively short period of time,” La Monica cautioned. “But don’t look to Wall Street analysts for clues to Apple’s future. They just don’t get it.”