How Do You Like Them Apples?


Is the relentless selling EVER going to end?

Apple (AAPL) reported first quarter of their fiscal year earnings after the close today and while the just completed quarter was sparkling their forecast for next quarter was underwhelming.

In the just completed quarter, Apple earned $1.58 billion on $9.6 billion in revenues – increases of 58% and 35%, respectively.  They sold 2.3 million, 2.3 million iPhones and 22.1 million iPods.  I’ve heard people say that Ipod sales were somewhat weak but overall the quarter looks really good to me (AAPL 1Q FY 2008 Earnings Release).

The problem was their forecast for the current quarter.  They forecast revenues of $6.8 billion and earnings of 94 cents a share – while analysts were expecting $6.9 billion and $1.09.

I think this sort of confirms everybodies fears of a slowdown in consumer spending.

Apple’s shares are being CRUSHED in the after hours – down 11-12% in the $137-$138 range.


Frankly, I’m a buyer here.  With $18.5 billion of net cash and short term investment on their balance sheet and 900 million diluted shares that works out to $20.50 in cash and short term investments per share. 

So you’re really paying $117-$118 for Apple’s business.  That business generated $4.1 billion in net income and $6.2 billion in free cash over the last 4 quarters for trailing multiples of 30 and 20.  If they can grow each 25% over the next 4 quarters we’re looking at forward multiples of 24 and 16 – for a 20 average.  Even if growth is only 15% the forward multiples are 26 and 17 – for a 21.5 average.  That seems like a reasonable price to pay for such a phenomenal business. 

From a technical standpoint, Apple seems poised to break below its 200 day moving average around $145 on the open tomorrow and would be down about 30% this year – from its close at $198 on 12/31/07 (AAPL 6 Month Chart).

Disclosure: Top Gun has no position in Apple (AAPL) shares.

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