The Breakdown

Explaining Southern California's economy

What's going on with Apple's stock?

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36639 full

Investors are justified in being confused about why Apple has seen its shares completely hammered off their highs of $644 this week, at one point plunging as low as $575. It's all they've been talking about on CNBC. 

There isn't really a good single explanation. So here are three:

• Apple is being sued by the Department of Justice and could be facing a revolt among wireless carriers. I've blogged about the former. On the latter, the likes of Verizon and AT&T currently cover much of the cost of iPhones in their wireless plans. This has enabled Apple to extract their profits, narrowing the providers' margins, while bolstering Apple's 30-percent margins, the thing that undergirds the stock price. If that comes to an end, then Apple won't be able to support a possible $1-trillion market cap on a more reasonable profit-margin model.

• Apple is overvalued. The stock isn't worth $644 a share (or $700 or $800 or $1000). Traders figure they've sucked in all the "dumb money" they can and are ready to exit their positions, taking the fast profits they've raked in since picking up the stock. A nice run concludes with the suckers seeing their money vanish in a puff of smoke. The stock could go to $450 as hedge funds and institutional investors unload their positions. It doesn't matter that the iPhone 5 is coming.

• Apple has morphed into being a different company, with FAR different investor expectations. I can't do any better than , an NYU finance professor who has just liquidated the Apple position I dearly wish I'd amassed, buying the stock (out of pity) in 1997 and selling it recently:

I am selling my Apple stock because I am worried about my fellow travelers in the stock. It is not that I have a problem with any of these groups individually, since I invest in other stocks where I co-exist with momentum investors, institutional investors, growth seeking investors or dividend seeking investors. In Apple, though, they are all in the mix, with different and contradictory views about what makes the company a good investment and what it should do, as a company, going forward. Each group is expecting its best case outcome: continuing price increases for the momentum group and institutional investors, high growth and a stream of new products for the price appreciation crowd and growing dividends for the dividend seekers. Perhaps, Apple can be all things to all these investors, but that is asking for a lot, and perhaps the impossible.

Apple will announce fiscal second quarter earnings April 24. Until then...HANG ON!

Follow Matthew DeBord and the DeBord Report on Twitter.

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