Shazir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Everything has been horrible for Apple (NASDAQ: AAPL) for the past three quarters. Zilch seems to be going right, Apple has lost half its market capitalization, competition seems to be increasing, and innovation seems to have been stopped. The rest of the market has been performing better than ever; however, Apple has fallen over 20% year-to-date. So, there is only one ultimate question here: Why did Apple fall so much, and will it continue to fall? Below I will discuss why Apple has fallen and why it will not continue to fall.
A few months ago on a conference call with Apple’s Tim Cook, Apple announced a share buyback. The announcement of the share buyback has not triggered an upward trend yet, but it will over time. The majority of buybacks that are done raise the price of a stock. Buybacks are a sign of a company with solid fundamentals and a horde of cash.
On April 23, Apple announced a 15% increase in its dividend payout, this converts to a cash value of $3.05 per share. Unless Apple’s current cash circumstances change, the likelihood of it reducing its dividend payout is highly unlikely. A decent dividend means that the company is stable for long-term growth and is a good investment.
Fundamentally, Apple’s valuation is amazing. Apple trades at a P/E of 10.2. Apple’s PEG ratio is at .62. Its earnings and revenues have steadily been increasing. Apple’s return on equity is 40%.
Since the death of Apple’s founder, Steve Jobs, Apple’s innovation levels are at a new low. Apple’s ingenious inventions - the iPhone, iPad, and iPod - were all successful. But lately Apple has not done anything fabulous. Apple needs another phenomenal product. This drop in innovation has taken a toll on its share price.
In the last ten years technology has advanced far beyond any of us could have imagined. Apple has dominated various technology markets, but in the past couple of years competition has increased from a number of competitors. Some major competitors are Samsung, and Google (NASDAQ: GOOG).
Price competition and product competition has especially hurt Apple in the smartphone market. Apple continues to lack the innovation that it used to have. Apple has not come up with a new product; it simply revives its old products. In my opinion, that is not enough.
Apple used to have this flair in its products; people would wait for its conference calls to see what Apple came up with. Companies would rush to build something as good as Apple’s products. Apple released its iPad three years ago, and since that moment in time, its competitors have released their versions. Competition is to the point where now there are nearly 100 devices just like the iPad.
A major competitor that Apple has faced throughout the years has been Google. Google has threatened Apple’s existence in many ways. An example of a major threat is its phone line. Google’s Android has continued to pose a threat to Apple’s key, the iPhone. Google has a ton of cash as well, an estimated $15 billion. If Google continues on this path it will surpass Microsoft as a stable and solid company.
Google has major products in its pipeline. An example would be its new innovation Google Glass, as well as its Nexus Line. Google Glass is a new and special type of product that its other competitors have not come out with. This product is special because it has sunglasses combined with other technology. Google also has its new Nexus Line as well as its tablets, Google should be up to par as far as technology with Apple and Microsoft.
When Google first launched the Android operating system at its keynote address in 2012, Google specifically said, “We created Android to stop an Apple-dominated future.” These few words showed Google’s motivation. Since 2010 Google has accumulated about 52% of the total market share. Fundamentally, none of these companies are a match for Apple and its horde of cash.
Microsoft (NASDAQ: MSFT)
Microsoft has also emerged as a key player in the smartphone operating software industry. Microsoft’s Windows 8 has been gaining marketshare in the past few years. Microsoft has always been into software. Many investors view Microsoft as a solid stock with solid fundamentals. Microsoft’s CEO Steve Ballmer is also motivated to continue to gain more marketshare.
Microsoft has been trying real hard to compete with Google and Apple. It has desperately come out with new products such as the Windows 8 software and the Surface tablets. But it still has not been enough. Microsoft has a couple of products in its pipeline as well including new Microsoft Office software, and the Xbox 1 which has sold out almost everywhere. These products will allow Microsoft to compete.
Microsoft used to be the worlds largest company by marketshare but since that time Microsoft has fallen back down to earth. Microsoft may still have a chance to gain some marketshare. Microsoft still has all the resources, cash, and revenue. All it needs is a new product.
In my opinion Apple will continue to dominate the technology industry; however, Apple will see major competition from its competitors. Apple will continue to pay high dividends and will continue to increase its horde of cash.
It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.
Shazir Mucklai has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!