Is Apple still a reliable stock investment?

Tech giant Apple released its fiscal second-quarter earnings with reports of positive revenue, but the first drop in year-on-year quarterly profits the company has experienced in 10 years. This quarter the company reported a profit of $9.5bn ($10.09 per share), and revenue of $43.6bn; last year they reported profits of $11.6bn ($12.30 per share) and revenue of $39.2bn.

Despite these drops, Apple (NYSE:AAPL) outperformed anyone’s expectations thanks to the increase in sales of iPhone and iPad; 37.4m iPhones were sold this quarter, alongside 19.5m iPads, a dramatic increase compared to the previous year’s 35.1m and 11.8m respectively.

CEO Tim Cook released a statement following the report, saying: “We are pleased to report March quarter revenue thanks to continued strong performance of iPhone and iPad. Our teams are hard at work on some amazing new hardware, software and services, and we are very excited about the products in our pipeline.

“Though we’ve achieved a credible scale and financial success, we acknowledge that our growth rate has slowed and our margins have decreased from the exceptionally high level we experienced in 2012.”

What does this mean for shareholders?

The prices in shares have clearly dropped quite dramatically in recent months, and shareholders are feeling shaky about where to go from here with the company. Goldman Sachs recently dropped Apple from their list of highly recommended stocks; based on the fact the company hasn’t released any revolutionary technology since the iPad.

The iPhone 5, according to Goldman analyst Bill Shope, in recent statement on Huffington Post hasn’t sold as well as expected, and added that the company must reveal some truly brilliant products in the second half of the year to claw back lost money. “Apple's stock fell $1.01, or 0.2%, to $427.90 in afternoon trading Tuesday, while the Nasdaq was up 0.2%. Apple's stock price is close to its one-year low of $419, hit a month ago. It's well off its all-time peak of $705.07, reached in September on the day the iPhone 5 went on sale.”

Besides taking the company off Goldman's "Americas Conviction List," which it had been on since December 2010, Shope lowered Apple's price target on the shares to $575, from $660. But he kept a "Buy" rating for the company.

City Index commented, saying: “Apple shares had come under large pressure ever since prices hit the heights of $705.07 in September last year. Since then, shares fell 45% to reach a low of $385.10 on 19 April.

“These falls were dictated by large scale profit taking from shareholders in the face on lingering doubts that Apples pace of revenue growth can continue in the face of escalating competition from Samsung, concerns over future product innovation and its muted cut through into the mass Chinese market.

“These concerns remain however the huge share repurchase programme which is set to see the company return $100bn to shareholders over 3yrs has helped to restore some beleaguered shareholder loyalty.

“It is no surprise therefore that shares have recovered as much as 16% from the recent April lows. Key to maintaining a restoration of investor confidence is whether the company can deliver a new wave of product innovation after the death of its previous creative leader Steve jobs and if its efforts to broaden its product reach in China.

“For the latter to happen, investors would like to see tie ups with suppliers such as China Mobile. If steps are made in this area, that could attract buyers back to Apple’s shares.”

About the Author

Marcus Holland is an editor at FinancialTrading.com, a guide to online trading that offers news, education and analysis of different financial instruments.

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