Shares of the world’s largest company had dwindled from an all-time high of $700 in September 2012 to less than $400 in late June 2013. Absent new innovations aside from the latest iPhone of iPad models, Apple no longer had the sizzle it once had on Wall Street. The company no longer seemed hip and cutting edge.
Some analysts insisted that Apple stock would never get its mojo back. A few thought it had become the next Microsoft (Nasdaq: MSFT) – a company that peaked in the late ‘90s. For Apple, $700 a share seemed like a distant memory.
Fast forward to this morning, and Apple stock is officially back. (Related: Apple Inc. (AAPL): What You Should Know About The Stock Split)
The stock opened above $630 a share, 60% higher than its nadir last June. Apple has really taken off in the last six weeks, advancing 21% since April 16.
How did Apple stock recover so quickly? Let me count the ways…
- It finally became shareholder-friendly.
For years, Apple has been deemed stingy. The company has kept most of its massive cash hoard — $150 billion at its peak – close to the vest. Until reinstating a dividend in August 2012, Apple hardly returned any of its cash stockpile to its shareholders.
Influential hedge fund manager David Einhorn actually sued the company for its epic stinginess. Activist investor Carl Icahn personally met with Apple CEO Tim Cook to convince him that rewarding shareholders would rejuvenate the stock price. Apparently, Cook was listening.
All Apple has done since is institute a buyback program that is already the largest of any company in history and increased its dividend by 24%. The latest increases in both programs came during the company’s April 23 earnings report. It’s no coincidence the stock is up 20% since then.
- It issued a 7-to-1 stock split.
Another part of becoming shareholder friendly was making the stock more appealing to the average investor. Apple will do so in a 7-to-1 split later this month.
Splits don’t change a stock’s value. But they can reduce the impact of sticker shock. And to an individual investor with only a few thousand dollars to invest, Apple stock looks far more attractive at $90 a share than $630 a share.
- Earnings growth picked up.
The main reason behind Apple’s slowdown may have been simple: the company wasn’t making as much money as it had the previous year.
In each of the four quarters in 2013, Apple’s earnings per share came in lower than the previous year. It was a shocking departure from recent years, when Apple had regularly grown earnings and blown consensus Wall Street estimates out of the water.
Now order has been restored. The $14.50 per share Apple earned over the three-month holiday period made it the best quarter in the company’s history. For an encore, Apple reported earnings last quarter that were 16% higher than in the year-earlier quarter and 14% higher than analyst estimates. Apple’s EPS is expected to increase 11% for the year. (Related: Apple Inc. (AAPL): What You Should Know About The Stock Split)
Increasingly, it looks like Apple’s underwhelming 2013 was an aberration rather than the start of a downward trend.
- Apple Buys Beats By Dre.
More than 10 years after revolutionizing the music industry with the invention of the iPod, Apple expanded its lyrical presence in buying headphone maker Beats Electronics for a cool $3 billion last week. It’s the largest deal in Apple’s history.
Beats Electronics, and more specifically its signature headphones “Beats By Dre,” are a major hit with teens and twenty-somethings. Beats Electronics is a cash cow that did $1.1 billion in revenue last year. The purchase should not only further improve Apple’s earnings, but also help resuscitate its “hip” image.
- New product rumors.
Rumors of a groundbreaking new Apple product have been swirling for the better part of two years. Now we may actually have concrete evidence that one may be imminent.
Apple has been building a team of medical technology experts, recruiting at least a half-dozen well-known biomedical experts, according to a Reuters report. That has fueled speculation that Apple is close to introducing a wearable device that monitors fitness levels – a veritable “iPedometer,” of sorts. The company also spent a record $4.5 billion in research and development last year – another telltale sign of big things to come for those who read the Apple tea leaves.
As the Apple rumor mill reaches a fever pitch, more and more investors are getting in now on the promise of recaptured momentum and a return to exciting new innovations.
For Apple, the sizzle is finally back. (Related: Apple Inc. (AAPL): What You Should Know About The Stock Split)
This article is brought to you courtesy of Chris Preston from Wyatt Research.