This brings to mind a comment I received back in 1997 from an MIT professor who was reviewing a draft of the manuscript for my first book -- The Technology Leaders: How America's Most Profitable High Tech Companies Innovate Their Way to Success.
In that book -- whose subtitle was inspired by a comment from Steve Jobs -- I analyzed over 1,300 technology companies and found that the ones that shared four organizational traits -- entrepreneurial leadership, open technology, boundaryless product development, and disciplined resource allocation -- tended to enjoy faster stock price, revenue, and profit growth.
The MIT professor who reviewed the manuscript asked me to think about "the direction of causality."
What he was suggesting is that I might be confusing coincidence and causality.
More specifically, he was suggesting I consider three possibilities:
- Do these four organizational traits cause the superior stock price and operating performance?
- Does the superior financial performance produce these four organizational traits? Or
- Do the two have nothing to do with each other?
My conclusion was that I did not have enough statistical evidence to answer his question.
When it comes to Apple's stock, I think its 4.9% rise in 2016 -- compared to a 2.7% decline in the NASDAQ -- fits with the third possibility -- there is no correlation between Apple's short-term stock price performance and its financial prospects.
This rise comes despite Apple's disappointing forecast for two of its products -- the nine-year old iPhone and the year-old Apple Watch.
KGI analyst Ming-Chi Kuo expects iPhone sales for 2016 to fall between 10% and 18% below their 2015 level of 232 million units.
Wall Street expects Apple to ship between 210 million and 230 million iPhones in 2016 -- so Kuo's expectations are below the consensus.
Apple Watch shipments are expected to plunge by at least 25% in 2016. KGI sees 7.5 million units being shipped in the 12 months of 2016 compared to the 10.6 million Watches that Apple delivered during the latter eight months of 2015.
KGI and Apple co-founder Steve Wozniak echoed the sentiment of my students -- none of whom raised their hands on April 12 when I asked them if they owned or would buy an Apple Watch.
Kuo is pessimistic about the Watch in the short-term but perhaps less so when Apple launches the iPhone 7.
Kuo noted that "the lack of useful apps, limited battery life and the Watch’s iPhone requirement are impeding sales."
But he expects "mass production of the next Watch during the third quarter of [2016], with a launch at the same time as the iPhone 7."
Sadly for Apple bulls Kuo sees rivals beating Apple to the punch for the iPhone 7. He noted that "Xiaomi, ZTE and Lenovo are all planning to launch their own dual-camera smartphone systems, and many of them are expected to beat Apple's iPhone 7 Plus to market," according to Apple Insider.
Meanwhile Wozniak told an "Ask Me Anything" session on Reddit that he was disappointed with Apple, noting: "Twenty watches from $500 to $1,100. The band's the only difference? Well this isn't the company that Apple was originally, or the company that really changed the world a lot."
No surprise then that Apple is expected to disappoint when it comes to reporting its second quarter results on April 25.
Mizuho Securities USA’s Abhey Lamba -- who sets Apple's price target at $120 a share -- wrote that Apple will disappoint on revenues and earnings per share. Lamba sees Apple revenue coming in between $50 billion and $51 billion -- short of Wall Street's $52.03 billion target.
And Lamba sees Apple's EPS as falling five to 10 cents short of the Street's $2 EPS target.
I can't explain why Apple stock has gone up this year. But it's clear that Wozniak has picked up on why Apple can no longer innovate its way to success -- its current leadership team has yet to demonstrate that the company can still "change the world."
And that suggests to me that despite Lamba's $120 price target investors should avoid Apple shares.
