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Tips for Baffled Investors on Apple Value

By Aswath Damodaran, Kerschner Family Chair in Finance Education

damodaran opinion article 1

One of the most critical lessons of value investing, however, is that if you wait until the momentum shifts in your favour and a catalyst appears, it will be too late.

The Apple saga is a reminder of how quickly momentum can shift in financial markets. Just six months ago, having released the iPhone 5 and with its stock price peaking at $705, the tech company that changed the way we live and created fabulous wealth for investors was on the top of the world.

The months since have not been kind – either to a company with more cash than it knows what to do with, or to investors confused and divided about what to do next. With expectations high, market reaction to the iPhone 5 was a disappointment. Apple’s stumbling response to minor problems (such as its Maps app) accelerated a sell-off that led the stock price to drop to $500 at the turn of the year. January’s earnings report, showing slowing revenue growth and pressure on operating margins, resulted in a fall to $440.

This has led to soul-searching among current and potential investors. Is the price drop an opportunity to buy into one of the world’s great companies at a bargain price or is there more pain to come?

Read full article as published in the Financial Times.