Apple’s Growth is Slowing and Guess What, It’s the Economy.

Apple (AAPL) is becoming “a real company” again.  In the last recession from December 2007 to June 2009 everyone was blaming the economy but Apple was not.  After 13 years of YoY quarterly growth Apple now expects a little more than 8% Q2 revenue decline.

Apple CFO Luca Maestri stated in an interview with Reuters,”As we move into the March quarter it’s becoming more apparent that there are some signs of economic softness. We are starting to see something that we have not seen before.”

It’s been a good run, mostly rosy, from an adjusted share price of $0.99 to $105.26, an astonishing 1074% from 2000 to the 2015 close.  Apples best years were 2004, 2009, and 2007 with gains of 201%, 147%, and 133% respectively.  At worst apple lost 35% in 2002 but this was before the 13 YoY quarterly growth streak.  Last year was the only other yearly loss, a modest 3%.

Apple Yearly Percent Gain

Apple Adjusted Yearly Closing Price
Apple Adjusted Yearly Closing Price

So what happened?  The mighty Apple also follows the rules of the market.  Apple creates great product but not more disposable income for the consumers.  In growth Apple took money consumers were spending on other products.   What exactly is an iPhone?  It’s a computer, camera, photo album, gps, mp3 player, calculator, planner, Rolodex, and many other things.  Products that iPhone users no longer have use or need money for.

Apple just became too big going from yuppie owned product to one owned and almost needed by everyone.  After years of recreating product categories like the smartphone and tablet Apple is running out of revenue growth steam.  Samsung took a bit of relative market share between the big two but also taught Apple their last lesson, people wanted bigger screens.

Bigger iPhone screens prolonged revenue growth for a few more years but a wall is now here.  Don’t expect Apple to be a growth company any more.  Apple will likely trade around its dividend from here.  At a share price of $99.99 per share the dividend rate is 2.08%.  Using the WIM 3.03% average dividend (Wal-Mart, Intel, and Microsoft), Apple could trade down to around $69 per share.  That being said Apple has a hoard of cash that can be used to increase the dividend if the board of directors deem that necessary.

Wal-Mart (WMT) dividend stands at 3.13%, Intel (INTC) 3.21%. and Microsoft’s (MSFT) dividend stands at 2.75%

Don’t expect Apple to go away, as the company runs out of things an iPhone and sister products can be the company will strive for new categories of product.  The Apple TV and Apple Watch work and show growth.  Those are just not enough to make up what can be lost from the iPhone which just became too big.  Apple has power in the name, if they put their logo on a refrigerator people will buy it.

EDAP TMS: A 2015 January Effect Play

EDAP TMS (EDAP) looked very promising in early 2014 as a FDA decision on Ablatherm for prostate cancer in the United States was approaching. I last wrote about EDAP at $2.80 on December 8. 2013. From that point it traded up to $6.05 as the FDA decision approached only to be trounced as the panel voted down Ablatherm leaving most investors shocked and the EDAP share price in a downward spiral. The fact is that while the 2014 FDA panel was disappointing, the year’s success was overshadowed by one temporary decision and the company share price is actually more attractive today than the end of last year.

The substantial drop from year high leads be to believe that the January effect will be lucrative to investors in the new year. The S&P 500 was up 13% as of December 26th 2014 for the year while EDAP was down 32% in the same time period and 67% from the years high. With an underachieving performance EDAP was likely used to counter realized tax gains elsewhere.



If you liked EDAP then why would you not like the company now?

EDAP TMS grew revenues by 27% year-over-year to 27.4 million USD for the first nine months. HIFU revenue increased by 114% worldwide even without United States Ablatherm participation. Gross profit margin increased from 40.3% to 45.2% of net sales which helped lead to a net income of 0.01 EPS in Q3 2014 which beat analyst estimates by 4 cents. The company remains financially sound with cash and cash equivalents of 14.0 million USD. Outside of working capital increases due to increased sales the cash burn remains close to nil. On a comparison note Misonix (MSON), which also produces HIFU products increased revenues by 15%. As of December 29th 2014 the company share price rose 123% for the year from a 2013 closing price of 5.63 to 12.56.

EDAP TMS received FDA guidance on how to get its Ablatherm, a non-invasive prostate cancer treatment, approved and now has a more focused approach for a new decision in 2015. A major point in the FDA guidance is that EDAP TMS does not have to do new lengthy study and can use current European and United States data saving years and expenses. EDAP TMS sells Ablatherm devices to many parts of the world and the company has statistics to back efficacy. Sometimes you just have to get your foot in the door and apparently limiting the applications of Ablatherm could accomplish this. The FDA recommended a modified indication for use in localized prostate cancer patients that have a greater risk of morbidity and/or mortality from the disease. The company currently has to file an amendment by April 29, 2015 which may extend the review period by up to 180 days. A new decision and similar excitement which took the EDAP share price to $6.05 in 2014 is expected later during 2015.

On December 29th EDAP rose over 8% as I believe smart money was acquiring a position prior to two major catalysts which occur in 2015. One being the January effect on a company that had a successful year overshadowed by a 2014 FDA decision. The second being a more focused FDA Ablatherm decision coming later this year. I believe strong gains are ahead as a decision once again approaches and United States prostate cancer patients potentially have another less invasive option for treatment.

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