The New York Stock Exchange (NYSE) contends with billions of dollars of turnover on a regular basis. It is the biggest in terms of domestic share exchanges. The main reason behind this is because the domestic companies they deal with are huge.
One of these companies is Apple Inc. The graph below shows just how big Apple is, as their share price reached a new high of $497.50 on 10/02/2012.
(Yahoo Finance, 2012)
The graph shows the share price of the company for as early as 1985; when an individual share could be purchased for less than $4. Share price remained at this level until the millennium, which is when the iMac became a familiar product. After a small dip in share price, Apple recovered sensationally. By 2005, share price had increased to over $70 per share (Yahoo Finance, 2012). The success of the iPod played a big role in this, along with Apple stores opening worldwide.
Technological companies are paramount to the success of such stock markets. In the NYSE they represent 20% of the market (Financial Times, 2012). Apple is now the largest US company by market capitalisation (FactSet, 2012). This shows how successful Apple is in relation to Market Efficiency.
It is argued by many that the success of the company would not have been so vast without the leadership skills of Steve Jobs (above). Mr Jobs lead the company with imagination and creativity, along with business nous. On 05/10/2011 Mr Jobs passed away, leaving other individuals to keep Apple at the top. Initially, the share price fell after this news was broke. However, the share price did not fall dramatically and did recover quickly. This shows that investors have faith in the company in itself, rather than just one person who was leading the operations.
Since December 2008 the company share price has been on a meteoritic rise, but will this bubble burst? Competitors such as Lenovo, the 2nd largest makers of pcs, have produced a 54% increase in profits (BBC News, 2012). Will Apple see this as a threat? Well if Lenovo follow in the footsteps of HTC then no. HTC had produced an increase in profits BUT announced that recent sales have been poor due to their competitors success, such as Apple (BBC News, 2012)
John Browett was appointed by Apple in February 2012, as Senior Vice President of Retail (The Guardian, 2012). It is reported that his wages have increased significantly. Is this an action that will help Apple remain top of the market and as powerful as they currently are? There is the potential that Mr Browett may be motivated by this new challenge. However, there is also the concern that he is there solely on the basis of money and that this alone will not help Apple. There is a lot of pressure at management level; with the possibility of people such as Chief Executive Tim Cook coming under scrutiny if the business begins to crumble. If results do not remain high then senior figures such as this will surely be blamed. If the company does begin to dip, will these individuals act in a “rational” or “normal” manner; will they act in the way of a utilitarian or would another approach be taken (Statman, 1999). I am sure that they hope this scenario never occurs.
Does share price remain high due to their reputation?
When I think of Apple, the initial words that spring to my mind are ‘innovation’ and ‘reputation’. This is what the company has been built upon, particularly in the last twenty years. RIM (Blackberry) were known as the ‘innovators’ of the smart phone market within recent history. However, technology quickly changed and RIM struggled to cope with that demand.
Apple currently benefit from an anticipatory price movement in share price when new products are announced. This is because the demand for all those products is so high; so investors become optimistic that the share price will increase further because of these past trends. It will be interesting to see how Apple now cope without jobs steering the ship and whether that optimism remains with potential investors.
Given the rise in Apple's share price, would you invest in Apple? Do you see it as sustainable? What would have to happen in the future within Apple?
ReplyDeleteI don’t think I would invest in Apple no.
ReplyDeleteInvestments such as this come down to your opinion on the matter. A lot of people would suggest that investing in Apple would be a good option due to the current position of the company. It was recently reported that the market value of Apple had exceeded the $600 billion mark, which is astonishing. It is also well documented that the company has a lot of cash readily available at their disposal.
Will they invest the money in companies in the same or similar industries? Will they invest in a totally different sector or will they just not invest at all? It will be interesting to see how this money will be used in the future. I think it is difficult to currently invest in Apple when there is uncertainty on what will be done with the cash in hand and whether that decision turns out to be wise or not.
I don’t feel that investing in Apple would necessarily be a risk, but I also do not know if there would be enough of a reward in the long term. It is not cheap to invest in Apple due to their success. The next problem is how much will the market value of the company increase? Is it possible that it will increase at the rate that it has in recent years?
I do see the market value of Apple increasing further but not enough in ratio terms for it to be worth making an investment in the company at this moment in time. I believe that there are smaller companies out there that are currently cheaper to invest in and offer a better potential return on a current investment. I think the investment decisions made by Apple in the short term will decide how successful they will be in the long term.