The stock market can often seem an irrational place, and never more so than where AAPL is concerned. The company keeps reporting record sales, has typically out-performed analyst expectations, takes home almost the entire smartphone industry’s profits and has so much cash it scarcely knows what to do with it – yet its share price is falling.

AAPL stock has fallen more than 14% since April, wiping $113B from the company’s market valuation. It dropped 7% in the past month alone. That’s the equivalent of McDonalds vanishing into thin air. What gives? 

Bank of America Merrill Lynch today gave some insight into the thinking of investors when they sell the stock despite the company’s incredible financial performance. Downgrading the stock from Buy to Neutral, and lowering its target share price from $142 to $130, its analysts cited six reasons, reports Business Insider.

  1. They see a slowdown in revenue growth because iPhone sales are also slowing, and new products like Apple Watch and Apple Music are taking time to catch on.
  2. China now accounts for 25% of all iPhone sales, and it’s going to be hard to increase that share.
  3. The strong dollar will likely harm profits over the next few quarters, and profits are correlated to the stock price.
  4. Apple is not crushing earnings estimates like it used to, and so analysts may lower their expectations.
  5. The iPhone 6S and 6S+ (or what the upgrade to the iPhone 6 is oficially called), will include new features including force touch, but these won’t be enough to drive the stock meaningfully higher.
  6. The analysts don’t see incremental capital return announcements beyond those already announced for the near future.

There’s an additional technical reason behind the sell-off: the current AAPL stock price is lower than the 200-day moving average. What that means is that a share is worth less today than the average value over the past 200 days. This statistic is one that triggers some automatic selling, as it historically tends to suggest that the value is likely to continue to fall.

But as USA Today notes, Apple’s share price has done the same thing 17 times before, and always recovered. In fact, it typically recovers from this position in around a month.

The bottom-line is that investors have their own reality distortion field. They look not at the long-term prospects of the company, but at likely short-term fluctuations; at standard measures which don’t apply to Apple; and at the gap between short-term expectation and reality – even when those expectations were driven by the very same analysts concerned that Apple failed to hit them.

None of which is to say that Apple’s future success is assured. The Apple Watch will, I think, prove a slow-burn. Apple Music has met with very mixed reviews. The company is dependent on a very small number of products, with just one of them – the iPhone – responsible for the vast bulk of its profits.

There are risks to this – among them the fact that traditional smartphone contracts made annual or biennial upgrades appear ‘free.’ With contracts increasingly moving toward a model where smartphone financing is separated from usage tariffs, there’s the risk that people may decide to hold onto their existing models for an extra year or so. That could have huge implications.

But while Apple introduces new product lines rarely, its financial strength makes it better placed than any tech company in the world to do what it has always done: observe trends, figure out how to do the same thing better than everyone else and then proceed to make more money than any other company. That’s the long-term trend I see.

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About the Author

Ben Lovejoy

Ben Lovejoy is a British technology writer and EU Editor for 9to5Mac. He’s known for his op-eds and diary pieces, exploring his experience of Apple products over time, for a more rounded review. He also writes fiction, with two technothriller novels, a couple of SF shorts and a rom-com!

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