Apple’s stock valuation may be dependent on gross margin

Whether the stock bounces from the 16-month low it hit Wednesday or sinks even lower may depend less on iPhone or iPad sales than on its guidance for the June quarter (more on that later) and what it reports about a relatively obscure ratio closely watched by analysts: the company’s gross margin, or GM%.

As always, Dewitt is keeping an eye on analyst’s estimates for the quarter to see how close to (or far off) the mark they are.

  • BGC

    Of course the valuation is based on gross margin. In fact, only three basic things make up a valuation: sales, margin and growth rate. If you have a gross margin like Apple you cannot live in peace. Whenever a margin is “too high” you will see an avalanche of competition moving in to pick fruits from the same tree. Imagine you’re a hardware vendor with 3% gross margin and physically capable to build something that kind of resembles an Apple product a a lower price point. Now you jump in with your copy or Apple inspired product with lower build quality and only 15% gross margin. That hurts Apple quite a lot, but it gives you a whole friggin analyst orgasming full fivefold increase of your gross margin. This is why too high gross margins are almost as bad as Amazon and Google destroying innovation by selling product at or below cost (or give away services for “free”) to turn you into a product. I believe Apple could maintain R&D, build quality and innovation with half the margin – it wouldn’t hurt anything of what we love about the company, but it would effectively destroy the stock to the point where it becomes worthless as the main talent & brain retention currency (an effect already in motion).

  • Winski

    It’s dependent on when Steve is coming back. Wall Street people do give a hoot about financial metrics… They care about drug-induced thrills and excitement and lies they can start and control.. Either Steve comes back or the share price goes to $ 9….