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In this Oct. 20, 2012 photo, Chinese people line up to enter a newly opened Apple Store in Wangfujing shopping district in Beijing. A Chinese court has ordered Apple Inc. to pay 1.03 million yuan ($165,000) to eight Chinese writers and two companies who say unlicensed copies of their work were distributed through Apple's online store.Andy Wong/The Associated Press

Apple has a whole new look for investors: A beaten-up stock that can't do anything right. But to become a compelling buying opportunity, more change is needed.

For sure, the stock has turned from darling to has-been in just four months. It closed at $450.51 (U.S.) on Thursday, bringing the total decline since hitting a record high in September to 36 per cent.

The share price plunged more than 12 per cent on Thursday alone – its biggest dive in more than two years – after Apple reported disappointing first-quarter results on Wednesday evening.

For current investors, that decline stings. But for anyone who has been sitting on the sidelines – watching the hype over the iPad and iPhone and marvelling at Apple's status as the world's most valuable company based on market capitalization – the issue now is whether Apple has become a compelling buy.

The stock's valuation isn't a whole lot of help here. It was cheap, based on earnings, at the share price's peak in September. Then, the price-to-earnings ratio was just 16 – a steal for a company with Apple's amazing profit margins and growth. Now, of course, the valuation is even lower, with a trailing P/E of just 10.

At first glance, this is baffling. Apple reported net earnings of $13.1-billion or $13.81 a share, beating expectations. Meanwhile, sales surged 18 per cent.

So where's the disappointment? Sales missed analysts' expectations, as did the company's forecast for the current quarter, reinforcing the impression that growth is slowing dramatically from a turbocharged speed.

Apple management also changed the way they will provide forecasts, saying they will no longer give conservative numbers but rather more realistic ones. The translation: Don't expect Apple to beat expectations anymore.

But what's really interesting about Apple's quarterly report is the analyst reaction to it: They've blinked. Once overwhelmingly bullish on the stock, analysts are now making some serious revisions to their target prices.

Examples: BMO Nesbitt Burns cut its target price to $580 from $640, Société Générale cut its target to $560 from $800, Goldman Sachs cut its target to $660 from $760, Royal Bank of Canada cut its target to $600 from $725, Jefferies cut its target to $500 from $800 and ... well, you get the point. Target prices are headed down, sharply.

Investors should love capitulation because it suggests that all the hype has been squeezed out of a stock, leaving upside surprises ahead. The problem with Apple, though, is that capitulation hasn't arrived.

The dramatic slide in the share price hasn't even sent the stock to a 52-week low yet, and it is still up some 245 per cent over the past five years. Apple is still the world's most valuable company, though its lead over Exxon Mobil is shrinking.

And while analysts are retreating, they're not exactly chastened: 80 per cent of them have a "buy" recommendation on the stock, and their new average target price implies a bullish-looking gain of 18 per cent over the next 12 months.

Finally, there is growing concern about Apple's lead over the competition. As a technology company, Apple must continually reinvent itself with every product launch – keeping ahead of rivals in tablets and smartphones and, ideally, introducing new disruptive technologies.

However, Apple is losing its edge as the competition improves. As for the next disruptive technology, there has been a lot of talk about a newfangled television – but Apple has yet to reveal anything, and no one really knows whether the commoditized television market really needs a shakeup.

For now, Apple looks like a great stock to watch, but only from the sidelines.

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