Beyond Price: Three Indicators of an Unhealthy Stock

Stock price is easily manipulated.

If you don’t remember anything else from this post, remember that. Apple, the most valuable company in the world, also has the dubious honor of possessing one of the most manipulated stocks in the world. If you hold Apple stock, one of the biggest mistakes you can make is to listen to analysts.

For starters, analysts have never understood Apple’s business very well. They keep mistaking it for Microsoft or Dell or Google. The people who analyze tech companies are not necessarily proficient at analyzing luxury brands. What makes one work is often the exact opposite of what makes the other work.

Price is also greatly affected by the emotion of the moment. Price is easily driven by greed or fear. One speculative news story can drive a stock through the roof, or through the floor depending on how well emotions are manipulated. If AAPL has taught us anything over the last couple of decades, it is that stock price is not the best indication of how healthy the stock actually is.

The Apple stock price today is proof that focusing on daily, or even yearly dips in price are meaningless over the long haul. The current price of AAPL is not what makes it a good buy. It is about certain fundamentals of the company that transcend price. Other Silicon Valley companies provide the following lessons:

Failure to Make a Profit

10 years later, Twitter still isn’t close to making money. This comes as a shock to people who think that Twitter is one of the most successful businesses of our time. Not only is Twitter not making money, no one wants to buy them.

This doesn’t track with people’s view of Twitter as one of the most popular and useful services the world has ever known. Despite all that, investors have been unhappy with the company that has so much potential, but no business model that can turn a profit.

Failure to Address Misconduct

Uber’s problems with sexual harassment and assault have been in the news since 2014, if not earlier. They have known about it. We have known about it. And yet it is still making headlines. It is clear that Uber has a problem with a company culture of misogynistic behavior.

As useful as the service is, people by the thousands keep deleting the app as a matter of conscience. It does not bode well for any stock when the company has a years-long problem of criminal proportions that is deeply rooted in the culture of that company.

Clearly, there are exceptions. There are companies that seem to routinely get away with murder without their stock being penalized by the market. But in general, it makes no sense to trust the stock of a company that can’t be trusted with anything else.

Failure to Focus

Sometimes it feels as if Silicon Valley is run by a bunch of ADD adolescents with Peter Pan syndrome. They have the attention of a hummingbird, flitting about from one idea to the other without any overarching sense of direction.

Google is the perfect example of a company that lost its focus for a number of years. They wanted to build cars, offer an internet service, be a cell provider, float literal internet balloons, build their own phone, their own tablet, their own laptop, their own VR headset, get into home security - the list goes on…

They were successful at none of these things.

Google is at their best when they remember who they are. At bottom, they are an advertising company. When you listen to their conference calls and read their financials, it is clear they are an advertising company that wishes they were something more glamorous like a lifestyle brand. They fund all of their unprofitable hobbies with the revenue from the one thing that makes them money. That kind of directional indecision is a leading indicator of problems down the road.

Don’t ignore the stock price. Just pair that with other signals such as the lack of profitability, ethics violations, and lack of focus.