Apple Has Three More 'Miss-And-Lower' Quarters To Go, Whitney Tilson Warns

On an aggregate scale, Apple Inc. AAPL is consistently a favorite in the hedge fund industry. The company's track record, shareholder-friendly actions of late and cheap valuation metrics makes it an easy pick for a money manager with assets to invest.

Kase Capital Management's Whitney Tilson isn't so sure. "Apple sure looks cheap, but I’m not buying," Tilson wrote in an email to investors Wednesday. Tilson cited a recent thesis from Doug Kass that compared Apple to "crapple," published on TheStreet's Real Money section.

Apple, 'Crapple'

The crux of Kass's analysis:

"I believe it's now foolish to own Apple shares. If I owned the stock, I would sell it -- as my analysis continues to suggest that the company's best days are behind it. I think AAPL's future sales-and-profit outlook is worse than consensus expectations, and that the tech giant's valuation faces numerous headwinds."

According to Tilson, Apple's lack of innovation is another reason why he's staying away. The fund manager avoided investing in the stock after the death of Steve Jobs, and while shares did double, there's an argument to be made that this was due to the release of larger-screen iPhones. "This wasn’t innovation – it was lame catching up," Tilson wrote of that development.

Related Link: Sacconaghi: Apple's Cash Flow Makes It 'Very, Very Discounted'

Where's The Innovation?

Going forward, he asks a simple question: Where is the innovation?

"The iPad – different screen sizes – yawn. Thinner notebooks, better screens – it’s all incremental stuff that every competitor has as well," Tilson answered. "What about the long-rumored AppleTV? The Apple car? Under Jobs, Apple disrupted/revolutionized/created SEVEN industries."

"I see none of that today."

The Real Problem

An over-reliance on the iPhone -- which accounts for two-thirds of sales -- is something that isn't being viewed as the risk factor it really is, Tilson warned. "I think the real question isn’t, 'What’s going to drive future growth?', but rather, 'What’s going to prevent a meaningful decline in revenues and profits over the next year?'"

A lack of ecosystem pricing power compared to the smartphone upgrade cycle and price points that are too high for developing economies are issues that cannot be overlooked, he warned. "I think this [the December quarter] is the first of four quarters in which the comps are going to be very tough...I suspect that Apple likely has three more 'miss-and-lower' (guidance) quarters before, a year from now, it might finally 'beat-and-raise.'"

Most tech stocks don't appreciate if they don't establish a fairly consistent cadence of 'beat-and-raise' quarters regardless of the valuation, he concluded.

Apple shares continue to fall on Wednesday and are in the $93 to $94 range.