Is Apple the New Microsoft?

John-Erik is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Well, it’s official: Apple (NASDAQ: AAPL) has lost its mojo--or at least it has on Wall Street. The company that carried the market on its back through recent stretches of economic stagnation has been moved to the clearance rack. The bears have circled, and the stock now sells at a value-priced 12 times earnings. Suddenly, the most exciting large-cap growth story in a generation is selling for less than the biggest tech story of the last generation.

That’s right: Apple is now cheaper than Microsoft (NASDAQ: MSFT). We’ve suddenly entered a world where a sub-$500 Apple price seems not only possible, but reasonable, and where bulls calling for $900 price targets look like snake-oil salesmen. Forget that a $900 price next year would have Apple selling at a sensible 18 times earnings, based on consensus estimates. Forget that a $425 price would have one of the fastest-growing large caps selling for a ridiculously low 8.5 times earnings. Suddenly, anything seems possible.

Has Apple reached its maturity as a growth stock? Has it started to settle into a Microsoft-like existence, where it can’t seem to fetch a premium on Wall Street and folks eye the company for a tidy dividend? Unlikely. Apple is still a growth juggernaut. And it’s one now on sale. Consider:

<table> <tbody> <tr> <td> </td> <td> <p><span>5-yr avg. sales growth </span></p> </td> <td> <p><span>5-yr avg. EPS growth</span></p> </td> <td> <p><span>Price to earnings</span></p> </td> </tr> <tr> <td><span>Apple</span></td> <td> <p><span>47%</span></p> </td> <td> <p><span>65%</span></p> </td> <td> <p><span>12.3</span></p> </td> </tr> <tr> <td><span>Microsoft</span></td> <td> <p><span>6%</span></p> </td> <td> <p><span>6%</span></p> </td> <td> <p><span>15.2</span></p> </td> </tr> </tbody> </table>

It’s hard to look at those numbers and see anything but one cheap stock. But stocks don’t get this cheap for no reason. Apple’s on sale because there are suddenly question marks in many investors’ minds where there had not been before. Lets take a look at some of the factors that have brought Apple to this low point, so we can better decide whether or not it’s time to shop the clearance rack.

Well, what did you expect?
Apple has missed the mark on some key analysts’ expectations over the past year. This is concerning, but the company’s string of quarters that crushed analysts’ estimates could not last forever. Eventually, analysts wise up and raise their expectations. Then, the company falls short, and the cycle begins anew.

The most recent miss could be due, at least in part, to the product cycle. The big release last quarter was the iPhone 5, which went on sale at the end of the quarter, and has suffered from production supply-line holdups, something Apple appears to be working out. Sales of the iPad were less than expected, but consumers were anticipating a smaller iPad on the near horizon, which may have held back sales on the models already available. The mini, iPad 4, new iMac, and Mac Mini all are set to roll out this quarter. And as’s Evan Niu pointed out, Apple is gearing up for a big period of sales.

The company already reported that it sold 3 million of the new iPad minis over just a three-day period. That could provide a quick and thorough remedy.

Apple missed on earnings in the fourth quarter of 2011 as well, and the share price tumbled by about 14% after that report. What followed?  Apple nearly doubled over the next 11 months.

Hey! I called the big piece!
Apple has lost market share in some key product areas. It’s now got a smaller piece of the pie in tablet computers, where it owned 50% of the market last quarter, as compared to 65% the prior quarter and more than 85% back in 2010. Simply put, until recent quarters Apple owned the tablet market, not just a majority share. It wasn’t going to keep that forever, especially as competitors like Google and Samsung unveil newer, improved, and often cheaper tablets. But the tablet market is growing fast -- up 50% over 2011 -- which means Apple can lose market share, but still grow sales significantly. On the flip side, the company has grown its share of the smartphone market, up to 15.5% from 14.2%, according to market research firm Canalys.

He’s no Steve Jobs
When Steve Jobs was at Apple, we expected greatness. We did so in part because we knew Jobs demanded it, and in part because he always seemed to deliver. We aren’t sure just yet what to make of Tim Cook, or anyone else on the management team. That’s what happens when one person is the face of an entire company for so long. Even Berkshire Hathaway has Charlie Munger standing alongside Warren Buffett.

But what investors should feel confident in is that Tim Cook is a shrewd operator. He’s shown Jobs-like ruthlessness, both with his own employees -- see  Tim Sobatta’s “The Pomme Company” -- and with competitors -- he called Microsoft’s new Surface tablet “compromised and confusing” and compared it to a flying car. Sound like any former brash Apple CEO you can recall? What’s more, we know Cook had the confidence of longtime boss Jobs, a man who demanded greatness. That alone should be reassuring.

But all the cool kids are selling!
Let’s face it: It’s easy to sell a stock when everyone else is selling.  If it was not for this single fact, many more investors would be a lot richer than they are today. Apple’s recent fall did not only come on fast, but it came on strong, with a bevy of opinion, both financial and consumer-related, burying the company as overrated and overvalued. This makes it all the harder to pause and look soberly at where the company stands and where it goes from here before parting with some shares.

What does it all mean?
Apple could continue to fall to even cheaper prices in the short-term. But there is no good evidence that the company itself has run out of steam. It remains innovative and incredibly effective in its execution. A strong quarter could reverse Apple’s fortune quickly, as we’ve seen happen after previous sell-offs. For long-term investors, it’s a good time to look for a deal on the stock.

jekoslosky owns shares of Apple. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple and Microsoft. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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