What's Going on with AAPL?

When you pick a name like “Apple,” you have to be ready for not-so-clever analysis, like:

“One bad Apple can spoil the whole tech sector," or,

“…declining stock prices have become the worm in this otherwise healthy APPL,” or even,

“Will Apple today keep the investors away?”

Despite the fact that Apple's first quarter earnings statement this month contained no surprises, analysts were quick to make the lack of surprise an issue. Profits are down $2 billion over last year while hitting record revenue targets of nearly $44 billion, right along with expectations. When you are Apple though, not beating expectations registers as a disappointment.

When Apple stock hit $705.07 per share last September, there were plenty of cries that a correction was coming. Few predicted that it would drop $300 billion in market value over the next seven months, though. By mid-April of this year, APPL was trading at $390.53 and trending gradually downward. The price of AAPL is the perfect example of why the short view can be a terrible financial position, turning the stock market into a roulette wheel.

Two years ago, Apple's revenue growth came in at 66 percent, which was attractive but clearly unsustainable. That's the kind of growth you can expect from a startup, not the number 17 company on the Fortune 500. Those who jumped on the rising stock didn't seem to realize that the rally had to end some day. For those who took a longer view, Apple's current price is much healthier now than its low of $78 per share just four years ago.

A quick review of the Apple's production timeline over the past few years provides insights into why it rose so rapidly. After the market crash of 2008, the companies that survived had to find new ways to operate in the new recessionary landscape. Apple built itself back up by driving customers toward high-end Macs and pushing developers to build apps that would make its struggling iPhone more attractive. Apple opened its first retail store in 2001, reinforcing the firm’s cult appeal. Meanwhile, rumors of an Apple tablet called the iPad swirled as industry experts pointed out that every tablet ever built had been a failure. Apple's rush to market with the iPad in 2010 turned out to be a great idea, and the company made bank while critics made wisecracks.

The death of Steve Jobs near the end of 2011 unquestionably marked a critical turning point in the Apple brand. Though stock prices continued rising for another year on the strength of profits, the consensus was that the company had lost its driving force of innovation.

Why AAPL stock continues falling remains a bit of a mystery given its value on paper. One reason is that profit margins are down to 6.2 percent from their high of 10 percent in 2008. Investors react instinctively to downward trends. Another contributing factor is the absence of shiny, new things in development since the underwhelming iPad Mini last fall. HTC and Samsung have announced new phones with advanced features like NFC (near field communication) without any response from Apple. Instead, Tim Cook suggested its new release cycle would not begin before this fall, which is a long time in the tech world.

Perhaps the most counterintuitive reason that the price is still dropping is because Apple has too much money. It currently holds cash reserves of $137 billion. With interest rates at rock bottom, keeping money in a savings account isn't helping anyone. Investors would be much more confident if Apple was investing that cash in new technology or returning higher dividends. In fact, Greenlight Capital sued Apple to get some dividends or preferred stock back after the precipitous drop.

Apple is still considering buyback options versus using the cash for acquiring companies on the innovative end of the Internet of Things. Thought leaders in the tech investment space like Morgan Stanley now expect AAPL price to remain weak through the summer and then start to rebound with the announcement of updates to their iOS operating system and new versions of the iPad and iPhone in the fall. Despite speculation about the iWatch, new innovations from Apple might still be too far out into the future to influence investor confidence in the short run.