Is Record-Breaking News a Perception Changing Moment for This Tech Giant?
bySep 23rd 2013 11:00PM
In a very aggressive bull cycle (i.e. Tesla), it seems that nothing can push shares lower. But then, with all cult stocks or momentum plays, an aggressive downtrend occurs, often pushing shares to levels of value. In the case of Apple , we have seen this first hand, but after setting an opening weekend iPhone record, is it possible that perception has changed, and Apple will now begin an aggressive uptrend?
A change in perception
Netflix and Green Mountain Coffee Roasters are perhaps the greatest example of a cult stock turned value opportunity.
Most are fully aware of what caused both companies to fall in 2011.
Netflix split its streaming and DVD segments into two businesses, and changed pricing, thus created fears that competition and margins were weighing on the company. In the case of Green Mountain, lost patents and questions of inventory led to its decline.
While both stocks struggled to gain any momentum in 2012, we can almost trace both company's recent rally to one event.
For Netflix, it was fourth-quarter earnings on January 23. The company was expected to post an EPS loss, but beat expectations by $0.25 to post a $0.13 per share profit. In addition, the company beat top-line expectations with revenue growth of 12.6%. From that point, Netflix traded from $100 to $170 in a two day period, and has yet to look back.
Green Mountain's impactful moment came in late 2012, back in November. The company posted revenue growth of 33%, beat EPS estimates by $0.16, and saw its stock rally from $30 to over $37 with fourth-quarter earnings. Like Netflix, Green Mountain is yet to look back, currently trading around $80.
Perception can be powerful
Both Netflix and Green Mountain saw a massive shift in the trend of their stock with a fundamental catalyst. This catalyst then created a change in company perception, thus allowing both to go from deeply discounted to a revamped cult stock.
This brings up a good point, which is the power of perception. Just look at Facebook : The stock was trading at $26 back in July, but just two months later it is fast approaching $50!
Like Netflix and Green Mountain, we can trace the beginning of this trend down to a particular moment. Facebook shares soared more than 25% after second-quarter earnings in July.
The company's mobile segment grew rapidly - almost 50% of total revenue - and revenue of $1.81 billion was $200 million better than the consensus . Thus, that $200 million differential, caused by mobile growth, lit a fire under Facebook's stock, adding more than $50 billion in company valuation.
The right catalyst
So, how do the stories of Netflix, Green Mountain, and Facebook relate to Apple? The answer is quite simple, all needed a fundamental catalyst to catapult them from the depths of pessimism. In the case of Apple, it has seen a one-year 30% loss, which began following a highly anticipated iPhone 5 launch, as opening weekend sales for the product were far below estimates.
Ironically, it is iPhone 5s and 5c sales that could be Apple's savior, or at least its stock. In the opening weekend, the 5s and 5c sold nine million total units , far greater than the iPhone 5's five million units.
As a result, Apple has updated fourth quarter guidance in an 8-K , saying revenue and gross margin will be on the high-end of prior guidance. With that said, could this be the perception changing catalyst to reverse Apple's trend?
Shares surged as high over 5%, which is far short of the perception-changing gains posted by Facebook, Netflix, and Green Mountain on their noted dates. Still, Apple is a massive company, and it appears that investors are aggressively buying on the news, as Apple adds nearly $20 billion in market capitalization.
Therefore, at 11.5 times next year's earnings, and a dividend yield of 2.5%, Apple is cheap, and with their opening weekend, it is clear that consumers still want iPhones. This suggests that investors still want Apple.
It's hard to know if Apple's opening weekend and guidance is enough to create a massive reversal and a march toward $700. However, it is a move in the right direction.
Apple is fundamentally improving, which is what Facebook, Netflix, and Green Mountain continued to do in the face of criticism. With that said, if a company does good, its stock tends to follow. In the case of Apple, the company is doing good, and if this is not a perception-changing event, investors should feel confident that such a moment is not too far behind.
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The article Is Record-Breaking News a Perception Changing Moment for This Tech Giant? originally appeared on Fool.com.Brian Nichols owns shares of Apple and Facebook. The Motley Fool recommends Apple, Facebook, Green Mountain Coffee Roasters, and Netflix. The Motley Fool owns shares of Apple, Facebook, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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