Once upon a time, Apple was a Wall Street darling. The company could do no wrong and there was a cheery consensus among analysts regarding Apple's prospects. That was less than a year ago. Now?
Apple has become a battleground stock.
All's fair in love and war
There are plenty of battleground stocks out there, some of which are even popular Fool picks. Stocks of this kind have a good way of polarizing investors and not many people are ambivalent about them. You either love them, or you hate them.
Netflix is a good example. As it exploded over 2010, it began garnering detractors and skeptics that felt its run and P/E were unsustainable. There was even a high-profile exchange between respected investor Whitney Tilson and CEO Reed Hastings. Shares briefly topped out over $300 per share in the summer of 2011. This debate is far from over, as Netflix's P/E is even higher now. Shares were under pressure today on rumors that activist investor Carl Icahn is reducing his position and hedge fund superstar David Einhorn may be going short.
Green Mountain Coffee Roasters is another battleground stock, which saw monster growth thanks to the soaring popularity of single-serve K-cups. Green Mountain's valuation reached such high levels that Einhorn made a public short call, raising questions on inventory accounting irregularities. Green Mountain peaked near $115 but is now a third of what it was.
Amazon.com seems destined to always be a battleground thanks to its slim margins and astronomical P/E. The company's focus on low prices, investing in infrastructure, and other disruptive initiatives has held back profitability, attracting no shortage of bears. Shares continue to flirt with all-time highs, so for now the bulls are enjoying their time in the sun.
How did Apple join their ranks?
Mind if I join you?
Unlike the others, Apple's valuation metrics have steadily declined in recent years while its market cap soared. The company's low trading multiples are an anomaly since it's grown to such an unprecedented size.
There's now disagreement among analysts and investors, and an increasing number are becoming less bullish or outright bearish amid Apple's monstrous pullback over the past four months.
Bond guru Jeff Gundlach thinks Apple is going to $425, while Einhorn sees no reason it can't reach a trillion-dollar valuation. BTIG Research analyst Walter Piecyk has a neutral rating, in part because Apple could potentially post negative earnings growth in the fourth quarter. Heritage Capital's Paul Schatz thinks Apple could end up losing up to 70% of its value from the peak.
Here are some of the conflicting opinions on the Street right now, in no particular order.
Nomura Equity Research
$440 to $550
Topeka Capital Markets
Source: Tech Trader Daily and CNBC.
This is hardly a comprehensive list; there are a lot analysts covering Apple. There are still many bulls on the Street, but there's anything but consensus when it comes to price targets and valuation. The high target shown above is four times the low target.
Right now is a pivotal time for Apple shares as the company nears perhaps its most important earnings release in years. Shares have lost about 30% of their value from their peak, and the company is about to post a record quarter in terms of revenue while the business is as strong as ever. Yet there's been a certain lack of investor confidence in recent months as some question Apple's future.
As the newest battleground stock, investors should expect volatility in the near-term as the bulls and bears trade shots over Apple. Who will come out ahead?
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The article How Did Apple Become a Battleground Stock? originally appeared on Fool.com.
Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Green Mountain Coffee Roasters, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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