If you find yourself confused by the bipolar nature of Apple’s (AAPL) share prices, you’re not alone. Asymco’s Horace Dediu has posted some analysis of Apple’s stock prices and has found that their wild boom-bust swings make relatively little sense from an economic perspective. What’s more, he has found that a large drop in Apple share prices will more often than not be followed by “a surge in earnings growth.” Dediu admits that this is very counterintuitive and speculates that the markets are just more prone to swings of irrational exuberance and depression with Apple compared to other stocks because Apple itself has been such an unpredictable company for many years.
“The market reflects crises (as well as over-abundance) of confidence,” he writes. “Unforeseen growth is what creates wealth and the crisis in confidence is a reflection of the improbability of continuing out-performance. When Apple’s performance is foreseeable the stock moves slowly upward. When its performance is unforeseeable the stock moves dramatically downward… When a product is understood the stock is mildly desirable. When a new product appears the future is hazy and the stock is undesirable.”
In other words, you’d still be wise to hang onto your Apple shares for a good while longer. Because even if the company’s stock was overpriced before, its current drop is likely to prove just as short-lived.