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Apple disappointment: 5 million iPhones sold

People wait at Lenox Mall for the Apple store to open on Friday in Atlanta.

JOHN SPINK/AP

Stocks that are priced to perfection can slip up when imperfections are exposed, but the case of Apple Inc. is baffling nonetheless. The share price fell 1.3 per cent in mid-morning trading on Monday after the company announced it had sold 5 million new iPhone 5s over the weekend, following their launch last week.

That's a lot of phones, and it suggests that for all the griping that the new iPhone is not a revolutionary break with previous models it is going to be a huge hit among consumers.

The problem with 5 million sales? Some observers had been expecting more. According to All Things D, many analysts believed first weekend sales would hit 6 million. And Piper Jaffray believed the figure would be 10 million.

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Sure, Apple sold out of its existing inventory – "we are working hard to get an iPhone 5 into the hands of every customer who wants one as quickly as possible," Apple's chief executive, Tim Cook, said in a statement. But as All Things D points out, supply chain dynamics are supposed to be Mr. Cook's specialty as a business leader.

Still, the whole priced-to-perfection thing is hard to square with Apple. It is the world's most valuable company, worth some $650-billion (U.S.) based on its market capitalization. But valuation is another matter: The stock trades at just 15.6-times estimated earnings and 16.3-times trailing earnings.

That's a reasonably priced stock in general, but downright cheap when you consider that Apple's five-year earnings growth rate is an astounding 45 per cent. Between 2000 and 2005, before the creation of the iPhone and iPad, the stock had an average price-to-earnings ratio of about 60.

There are plenty of things to worry about with Apple. It needs to constantly reinvent its products, and competition within the gadget business is fierce, with many companies now delivering viable alternatives to the iPhone and iPad. As well, there were reports on Monday that a weekend brawl in the dormitory associated with the massive Chinese facility that makes iPhones has disrupted production – for a day.

But disappointment over 5 million iPhone sales on the weekend doesn't look like a point of concern.

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