If there was ever a time for Apple CEO Tim Cook to throw investors a bone it’s now. Ahead of Apple’s quarterly earnings tomorrow, shares of the word’s most fawned over company have slid from an all-time high of $705 last September to about $391 as of Friday’s close. Apple stock is the lowest it’s been since the death of Steve Jobs in 2011.
You can argue whether Apple’s peak was ever rational, but what investors are looking for now is a sign that will help them decide if the Apple blood-letting has gone far enough, or if the stock has further to fall. Here are five things investors will be keeping an eye on.
1. Admitting there is a problem. As Apple has shed $290 billion in market value since its peak in September (let’s pause and reflect on that mammoth number, that’s about 12 times the current value of Dell up in smoke) Cook and the Apple team have been close-lipped on the matter. Acknowledging there is an almost $300 billion problem with your stock is the first step toward recovery. Cook needs to give investors some comfort that he is interested in taking measures to bolster shares.
2. Gross margin, rising or falling? As highlighted by Fortune’s Philip Elmer-DeWitt, gross margin underpins both the bull and bear cases for Apple stock. Apple’s industry-best gross margins peaked at just north of 47% a year ago. In January Apple reported gross margin of about 39%. Apple stock bears believe that with ongoing pressure from Samsung and lower-priced and lower-margin gadgets running Android, Apple will not be able to regain its former hefty margin. In that scenario, Apple’s financial edge as company continues to erode, along with its stock price. Apple bulls meanwhile will be looking for improving margin as Apple works through the kinks in cranking out its new lineup of iPhones and iPads in particular.
3. How about a dividend increase? Raising Apple’s dividend would be a definite gift to investors; a sign that yes, Apple does care. And while in some ways it is also a signal that Apple’s best growth days are behind it, it would likely give the value investing crowd confidence to put some cash back into Apple shares.
4. You’re sitting on $150 billion in cash, spend some of it. A chunk of all that moolah Apple is hoarding needs to be put to good use. Increasing the dividend is one such use, but signaling that Apple is prepared to make some big moves and buy some companies of substance would get the investor juices flowing. Look, Google takes risks with its money, some pan out (YouTube), others are a work in progress (Motorola), but it is trying to move the ball forward by filling in with the people and technologies it lacks. Apple is practically nowhere in web applications, it can use the help, and it has the money to buy it. Stop being such a tightwad.
5. Give us the damn Apple TV, or something new. In the end, incremental moves like dividend increases won’t send Apple stock soaring to previous heights. Shares don’t get back to that level, if they ever do, unless Apple can create new markets with new devices like it did with the iPhone and the iPad. That is a very tall order, of course, but more of the same won’t bring back growth – and above all, that is what investors crave.
