After surpassing $700 in late September, Apple's stock has been on the decline for the past few days, closing at $576.80 on Friday, down $19.74 from Thursday's $596.54. Last week was the first time Apple's stock had closed below the $600 mark since July.

The stock has shed a tenth of its value in one month, the biggest monthly loss since 2008. In addition, the decline has seen the Apple stock lose over $100B in market cap, although with a market capitalization of $541.74 billion, Apple is still the most valuable company in the world (in second place, Exxon Mobile is currently $416.68B).

So what has caused Apple's shares to dive to a three-month low and should Apple's 27,696 investors (according to their recently filed Form 10-K) be worried? Has Apple's winning streak come to an end?

Or does Apple's stock, currently at $576 represent a great buying opportunity for potential investors? One analyst report published this weekend suggests that Apple is a good buy: Apple shares will be worth more than $1,000 in three years, according to analysts at Valuentum.

According to the Valuentum article, published on Seeking Alpha, Apple could be worth $1,062 within three years. This figure is based on the "existing fair value per share of $818 increased at an annual rate of the firm's cost of equity less its dividend yield," explains the report.

The report notes a number of factors for the positive outlook. It suggests that Macs continue to gain market share, particularly with younger consumers. It also notes, Apple has an "excellent combination of strong free cash flow generation and low financial leverage".

However, given the volatile nature of Apple's stock right now, we examine the reasons for the decline and offer information that may help you decide whether it is a good buy.  

1) iPad mini disappointment or sales driver?

Earlier in the year rumours about the iPad mini helped Apple's stock reach new highs. So why has Apple's stock been declining since the new product was announced?

Following the announcement of the product analysts reacted negatively to what was considered the high price of the iPad mini. Apple's share price fell following the company's special event on 23 October, and reports suggested that this could be down to the iPad mini's £269 price tag.

Compared to some of the competition Apple's smaller tablet has a high price, although Apple's not the only one receiving criticism for the high price of its tablet: Microsoft's 10.6in Surface RT tablet has a starting price of £399.

Regardless of the price, the iPad mini is predicted to be "the competition's worst nightmare." Sterne Agee analyst Shaw Wu said: "We continue to believe that the iPad mini is the competition's worst nightmare and will likely slow down the adoption of competitor tablets."

As yet it is unlikely that the device has given the competition cause for concern, however. Piper Jaffray analyst Gene Munster had predicted that Apple will sell 1.5 million iPad minis this weekend - that's half the number of iPad 3 units that were sold within the same space of time following its launch. Apple has now announced the sales of the iPad mini in the first weekend. Today Apple claims it sold a total of three million iPad mini and iPad 4 combined. The analyst reaction is here: Analysts and investors react positively to iPad mini sales.

However, the launch of the iPad mini on Friday failed to prop up the stock thanks to reports of smaller queues than those seen for previous product launches. However, it should be noted that Apple is to launch a cellular version of the iPad mini towards the end of the month, a fact that could have caused many consumers to hold back from purchasing the device.

Another reason for the low turn out for the iPad mini may have been the weather. Camping out for a new product is certainly a less attractive idea in November, compared to the iPad 3 launch in March, or the Summer launch of the iPhone 5. Presumably, queuing outside a store is even less attractive in New York following Hurricane Sandy.

However, reports suggest that big queues formed for the iPad mini in New York, so it would appear that Apple cannot blame the weather for a poor turn out there.  

As for whether Apple can blame the decline in the value of its shares on the hurricane; according to reports, most US stocks actually rose after the market was reopened.

Assessment: Too early to tell 

2) Weaker-than-expected earnings

Apple sold 27 million iPhones and 14 million iPads in the last quarter of 2012, swelling its revenue by 27 percent, but its profits fell short of what analysts had been expecting. Does this explain why investors have been selling their shares?

Apple's net profit for the quarter that ended on 29 September was $8.2 billion, or $8.67 per share. That was below the analyst forecast of $8.75 per share, according to a poll by Thomson Reuters.

However, revenue was $35.97 billion, up from $28.27 billion and slightly ahead of expectations.

Experts suggest that what concerned investors was Apple's low expectations for the first quarter of fiscal 2013. Apple announced that it expects revenue of about $52 billion and earnings per share of $11.75. Those numbers are below the current analyst forecast, which calls for $54.98 billion in revenue and profit of $15.41 per share.

Also concerning investors, is Apple CEO Tim Cook's announcement that Gross Margin (a measure of how efficiently a company turns sales into profits) for the December quarter would be lower than it has been. Apple revisits this in its Form-10K, noting that it "expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during 2012". Apple anticipates a gross margin of about 36% during the first quarter of 2013, this compares to a gross margin percentage in 2012 of 43.9%, and to 40.5% in 2011.

Assessment: Not as bad as it looks

3) The Forstall fall out

Apple's stock fell below $600 in the first days trading following the Apple executive re-shuffle (with two Apple executives, Scott Forstall and John Browett, leaving the company). That day Apple finished at $595.32, down $8.68, having fallen as low as $587.70 during the day's trading.

However, prior to the market opening (the NASDAC had been closed for two days due to Hurricane Sandy), analysts had mostly reacted positively, so why was the investor reaction so negative? Uncertainty about the management's ability to run the company seems to be key.

Sterne Agee analyst Shaw Wu expressed some concerns, saying: "The sudden departure of Scott Forstall doesn't help. Now there's some uncertainty in the management," according to a Reuters report. "There appears to be some infighting, post-Steve Jobs," he added. 

Global Equities Research analyst Trip Chowdhry wrote that Forstall's departure was "a major blow to Apple," notes The Wall St. Cheat Sheet.

Another snippet: Earlier this year Scott Forstall sold significant quantities of Apple Stock. "Maybe the stock sales did signal Forstall was really upset with how things were going under Tim Cook's leadership in the post-Jobs era," notes The Street. Should investors take note at what might be Forstall's vote of no confidence in Cooks' ability to run the company?  

Investors may be concerned that Cook is not up to the job of managing his team of ambitions executives. The late Steve Jobs is thought to have kept such in-fighting in check.

In addition, while the blame for the Apple Maps fiasco has been placed at the feet of Forstall, some reports note that it is ultimately the fault of Cook. Was Cook asleep at the wheel, asks one report?

Cook is also being criticized for his hiring, and subsequent firing of John Browett. However, even under Browett, retail store numbers, per-store revenue, and workforce numbers have increased, according to Apple's 10-K form. Apple opened 33 new stores in 2012, 28 outside of the US. There are now 390 stores. According to the 10-K form, Apple plans to open 30-35 new retail stores in FY 2013, with 75% of those outside the US.

Assessment: Better out than in

4) Declining market share

Returning to Maps briefly, it should be noted that Apple's Maps software was met with widespread frustration and ridicule. As JPMorgan analyst Mark Moskowitz wrote: "The buggy and poor-performing Maps app, which displaced Google Maps as part of the iOS 6 launch, has been a black eye for Apple."

Apple certainly shot itself in the foot when it ditched Google Maps in favour of its own poor offering. Apple gave customers who might have purchased an iPhone 5 a reason to look to the competition for their next smartphone.

There are concerns that Apple has slipped from its position of leading smartphone maker. According to ABI Research, Samsung shipped more than double the number of smartphones shipped by Apple in the third quarter of 2012. According to the research, Samsung sold 55.5 million units between July to September, while Apple sold 26.9 million.

Apple admits that the competition is hotting up in its 10K report. Apple said it is confronted by "aggressive competition" and expects it to "intensify significantly" as rivals "imitate some of the features of the company's products and applications within their own products or, alternatively, collaborate with each other to offer solutions that are more competitive than those they currently offer."

Apple also noted that its competition have "aggressively cut prices" and lowered product margins with a view to increasing market share. "The company's financial condition and operating results can be adversely affected by these and other industry-wide downward pressures on gross margins."

In addition, the competition "have substantial resources and may be able to provide such products and services at little or no profit or even at a loss to compete with the company's offerings," wrote Apple in the Form 10-K.

Assessment: It's not being number one that matters, it's the money Apple makes  

5) Patent disputes

The Samsung story goes far deeper than market competition. The two have been in and out of court over the last year and while Apple won the case in the US this summer, this weekend the company had to post a statement regarding Samsung on Apple's UK website in which it repeated the finding of the UK court that " to comply with a court ruling on Thursday". 

In Apple's Form 10-K it noted concerns that could arise from the patent battles, should things not go in in its favour. Apple wrote: "No single patent or copyright is solely responsible for protecting the Company’s products. Many of the Company’s products are designed to include intellectual property obtained from third parties." However, it added: "Although management considers the likelihood of such an outcome to be remote, if one or more of these legal matters were resolved against the Company in a reporting period for amounts in excess of management’s expectations, the Company’s consolidated financial statements for that reporting period could be materially adversely affected."

Apple's senior vice president of legal, Bruce Sewell, has just sold half of his Apple stock. Patently Apple is suggesting that there may be a connection with the news that he had sold some stock and the news that Apple had been ordered by a UK court to change the wording of the statement about Samsung that they had been told to put on their UK website. 

Assessment: Perhaps Apple shouldn't have made such a big fuss, it may come to regret it

6) Supply and demand

Another fall out from the patent dispute, Apple has done its utmost to remove Samsung from its supply chain. Unfortunately one knock-on effect of this appears to be that Apple has been unable to meet demand for the iPhone 5 due to a shortage of parts that its new suppliers cannot build quickly enough.

In addition, some reports claim that Apple's suppliers are unhappy with the company's unrealistic demands, noting strikes at the Foxconn factory.

“Everyone knows that Apple mistreats its suppliers and keeps trying to push the prices down. It also wants all of its suppliers to comply exactly the way it thinks the manufacturing process should be. Maybe Apple won’t get its way anymore,” said a source quoted in a Korea Herald report.

“When we sign a contract with (Apple), it’s not for the money but for the fame,” said another source. The Korea Herald suggests that if Apple slips from its lofty position suppliers may be less wiling to work with it.

However, in Apple's favour, much of its money is spent on costs associated with these suppliers, a fact that may keep the relationships sweet. According to Apple analysts, the company is fronting the costs for their supplier’s factories and other manufacturing equipment, suggests Forbes.

Could Apple be too reliant on these Asian suppliers? In its Form-10K Apple wrote: "Substantially all of the Company’s hardware products are manufactured by outsourcing partners that are located primarily in Asia. A significant concentration of this manufacturing is currently performed by a small number of outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced suppliers of components and manufacturers for many of the Company’s products. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments."

Apple adds that it "Remains subject to significant risks of supply shortages and price increases."

Assessment: Apple CEO Tim Cook is supposed to be a numbers guy and yet Apple is missing the numbers, that doesn't look good

7) Not enough iPhone 5

Following on from these supply issues, the scarcity of the iPhone 5 is said to be the main reason Apple's shares have tumbled.

It is thought that the holdup is the result of a shortage of the new displays that Apple is using in the iPhone 5.

Today Apple's online store shows a shipping delay of three to four weeks for the new iPhone.

Piper Jaffray analyst Gene Munster and his colleagues have been investigating availability of the iPhone 5 using Apple's online reservation system for next-day pickup. Stocks are so low that they have only on a few occasions been able to order a phone, and then only if they logged on promptly at 10pm.

It is noted in a New York Times report that it is better for Apple that it appears to be suffering problems of supply rather than demand.

Assessment: While it's better that supply can't meet demand, perhaps Apple should have been more conservative about releasing the iPhone in so many different markets around the world, was Cook getting carried away with the numbers?   

A positive outlook

Among these concerns there are still some analysts with a positive outlook for Apple.

1) Expect a blow-out quarter

The next quarter looks like it will be a good one, notes one report suggesting that Apple left a "major clue that it’s expecting a blowout quarter for the holidays" in it's financial report.

"We already know that Apple’s characteristic lowball guidance calls for $52 billion in revenue in the current quarter, which would top last December’s $46.3 billion and set a new all-time record for the iPhone maker…" writes The Motley Fool, adding: "Apple’s manufacturing and component purchase commitments have just skyrocketed sequentially to $21.1 billion. That’s an increase of $7.5 billion compared to the last quarter and is Apple’s highest by far."

"That means that Apple is gearing up to meet massive demand for the arsenal of products that it’s unveiled over the past two months, which it expects to drive 80% of revenue this quarter," concludes that report.

Assessment: Apple will sell a lot, if Apple can make enough products. Is it time to start getting excited about the Apple Television again? 

2) Extra R&D investment

In it's Form 10-K, Apple revealed that it is expanding its research and development (R&D) costs. Apple increased spending on research an development by almost $1 billion in 2012, representing a nearly 40 percent increase from one year ago. The total research and development expense was $3.4 billion in 2012, $2.4 billion in 2011 and $1.8 billion in 2010.

However, as a percentage of sales this is actually declining: R&D spend was 6 percent in 2012, 7 percent in 2011, and 8 percent in 2010, notes Forbes.

In comparison, rivals like Google and Microsoft spend around 15 percent of revenues, and Samsung spends around 6 percent, notes The Verge.

Assessment: It's good news that Apple's upping investment in research and development. We expect that it's busily patenting everything it invents too.

Follow Karen Haslam on Twitter / Follow MacworldUK on Twitter 


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