Apple (AAPL) is the poster child of this market crash. It took a market meltdown to help expose just how overvalued the stock was. The question is how much lower can it fall.
Shares of the gadget maker closed down another $2.47, or 2.5%, to $97.05 Friday — capping off whats been a breathtaking 28% decline from the stocks high last year. Apples fall will go down as one of the biggest wealth destroyers in recent market history - shredding $218 billion in market value from the markets high on May 21, 2015 adjusted for stock buybacks. Thats more than the entire market value of roughly 485 stocks individually in the Standard & Poors 500.
Apple is the most widely held stock by consumers — so it is the market to many. By that measure, Apples shares are a disaster amid this latest market downturn. Apple — by far — has accounted for more of the market value lost in this market decline than any other. Energy pipeline company Kinder Morgan (KMI) is the second biggest wealth destroyer — but it only wiped out $63.5 billion from the high.
The question now is how much lower Apple shares can do. Here are some ways to think about that:
? $92: Apples previous intraday low. Shares of Apple plunged to $92 a share on an intraday basis back in August during a market malfunction. Many investors are hoping this previous freak-out low will hold.
? $77: The pattern of where Apple shares have crashed before. The last time investors worried about slowing smartphone growth sent the stock down 43% between Sept. 2012 and June 2013. If Apple drops from its $134.54 high to the same degree, that would put the shares at $77.
? $39.65: This could be somewhat of a worst-case scenario. Apple investors like to say Apple is cheap because it trades for 11 times its diluted trailing earnings. Theres just one problem — Apple is a giant hardware company. Large hardware companies tend to have low multiples. Theres really one one decent publicly traded large hardware company left: HP (HPQ). HP, a seller of computer hardware, trades for 4.3 times trailing earnings. That same multiple applied to Apple would give it a stock price of $39.65. Growth mutual funds, like American Funds Capital World Growth & Income Fund and Hartford Capital Appreciation fund have slashed their holdings in Apple the past six months seeing signs that the companys rapid growth is stalling, according to Reuters.
To be sure, while analysts are worried smartphone sales are mature and slowing, thats a far cry from the state of the personal computer or printer market HP is competing in. HP is expected to grow just 3.5% a year over the next five years. Thats a fraction of the 13.3% long-term growth analysts expect from Apple, says S&P Capital IQ .
These scary scenarios may never come to pass. Analysts remain bullish on the stock — despite signs of a slowdown — and are calling it a buying opportunity. Analysts have an average 18-month price target on Apple at $142.91, says S&P Capital IQ. If correct that would be a staggering upside.
Meanwhile, Apple is sitting on more than $200 billion in cash and investments. Even if you strip out the companys debt, the company still has a tangible book value a share of $19.78. That means Apple is trading for just about 5 times tangible book value — which is a discount to the average 11.2 price to book value of companies in the S&P 500. If Apple were to trade at that multiple, it would be worth $221 a share.
Theres no question Apple was overvalued - given the historic decline in its value. But the question now is what is the right price? Given the huge range of possibilities - you can understand why Apple has become the ultimate battleground stock.
Matt Krantz on Twitter: @mattkrantz.
