Earnings misses are always a negative. While largely anticipated by the Street, the magnitude of Apple’s Dec-18 pre-announcement was a disappointment. It’s understandable that investors are piecing together what went wrong and its impact on the business longer-term — we went through the same exercise — but we think there is a larger point that’s being missed: the company will still report a record earnings result. Tim Cook wrote in tonight’s letter, “we also expect to report a new all-time record for Apple’s earnings per share.” There is a disconnect between a company about to report a record earnings quarter and the stock, which is down 34.3% since last reporting.

AAPL stock is now at a crossroads. Some investors will consider the stock broken and never reward it with a “proper” multiple, but we’ve followed the company long enough to know there is cyclicality in the market’s relationship with Apple. In the meantime, we expect the company to focus on Tim Cook’s promise to “focus really deeply on the things we can control” and help investors better understand the underlying strength of Apple’s business. It will probably take a new product category, large M&A (to restart growth narrative), a more aggressive buyback, or providing greater insights into their business, particularly services, to persuade investors to think differently about Apple’s multiple.

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