The unveiling of the iPhone 5s and 5c precipitated a nearly 51-point drop in shares of Apple, falling from US$505 to $454 in less than a week's time.
The recent decline in Apple's share price serves as a prime example of why keeping a close eye on Apple's stock performance is often an exercise in confusion.
The impetus behind the large sell-off of Apple shares was the higher than expected price tag associated with the iPhone 5c. Investors have been clamoring for a cheaper iPhone for years, viewing it as the only means for Apple to attain meaningful market share. Never mind, of course, the fact that Apple continues to command the majority of all profits in the smartphone market.
Perfectly summing up what is often the nonsensical nature behind the ebb and flow of Apple's stock price, John Martellaro of The Mac Observer writes:
We know the drill. Investment analysts, VCs and some media sites get a simple-minded idea. Apple should sell cheap iPhones to stop the infestation of cheap Android phones in emerging markets. That will surely allow Apple to squeeze out the bad guys and dominate the market...
This is exactly what happens every year. A collective consensus regarding the best course of action for Apple emerges amongst analysts and tech pundits. When Apple chooses to go in a different direction, shares of Apple begin to plummet.
The fundamental problem is that the same people who are so quick to opine on what Apple should do are the same people who are so self-assured in their wise counsel that they rarely, if ever, take a second to consider all of the ramifications that would manifest if Apple actually heeded their advice.
Martellaro drives this point home:
Apple, on the other hand, has its own set of problems. It must maintain the quality of its brand, and it must allow any iPhone to be a gateway to its own services, iTunes, iCloud, iBooks and so on.
So just exactly how would Apple build a cheaper phone that nevertheless supports all the services Apple offers and also maintains that special customer craving for something really cool? Cheaper speakers and audio subsystem would denigrate iTunes. Crappier display? That would only disappoint. Omit certain communication bands? Then it wouldn't work worldwide seamlessly. Cheapen the construction so that when a customer drops it from a meter height, it explodes into 20 pieces? Not good. Smaller battery? Not with LTE you don't.
It's not far-fetched to assume that shares of Apple would have fallen even if Apple priced the iPhone 5c much more cheaply. Inevitably, the new narrative would have been concern over Apple's margins.
As it stands now, Apple's P/E ratio is below that of Dell's, which in essence sums up why making sense of Apple's share price is not for the faint of heart.