Originally Posted by Dr Millmoss
I see you're still looking for logic.
Truly, it is difficult to know how a PE in stratosphere can be justified by any logic, but again, the market is speaking in the only way it knows how. I suppose you'd have to call it a willingness on the part of investors to make a long-shot bet, with the hopes of getting in early on a big future growth story. I'll bet RIMM was selling in this PE range ten or so years ago. I actually had that stock on my watch list for a long time, before anybody had heard of the Blackberry, but I thought it was too risky and expensive, so I never bought in. A small bet in that direction would have netted me handsomely. Also, when I bought AAPL in 1997 it posted a PE of N/A since they'd had unprofitable quarters, many of them actually. That wasn't a purchase made on the fundamentals. It was made by feel, not logic.
The same old apologists, not apologizing!
I'm looking for some consistency. I tend to be consistent. That's the way you make money, as long as your ideas work, of course. I had Apple in the '90's, on and off, and did pretty well. But then, almost anything in the mid to late '90's made money.
I don't see a couple of points in PE as being a problem. In fact, I never like a company to get too far ahead. Whenever Apple was sitting at 35, I became nervous. I do think Apple should be at 20. I would feel comfortable at that. Apple isn't an old line manufacturing company that sits at 10. And 10 is low by historical standards.
The main reason why Apple isn't higher is the reason we all know. The law of large numbers. There were people who felt Apple would bump against it last year, but they didn't. So they were (are) sure they would hit it this year, but so far, they've gone in the other direction.
Unless Apple comes up with a major new(for them) product category, they will likely hit it next year. I can see sales of the phone and iPad increasing by a great amount, but it would likely limit Apple's growth in 2012 to no more than about 25 to 40%. a lot lower than this year. But that's still an enormous amount for a company so large. Then growth will slowly taper off.
It's still is no reason for the PE to drop now. If next quarter is another blowout, then I'm sure the stock will rise quickly for the rest of the year. I still expect at least $450 by the end of the calendar year.
What you have charted here so well is the compression of AAPL's PE over the last few years. Some of the analysts are being honest in saying that even if this process continues, the stock should still rise, so long as earning growth outstrips the multiples compression. As investors we'd just have get used to the idea that doubling earnings does not double stock price. So then what happens when earnings don't double? Now, there's the rub.
What we seem to be witnessing is the transition of AAPL from growth to value. Painful to watch while it's still very much a growth story.
Of course, what he charted is arbitrary. When that's done, the numbers can show anything. In addition, except for a couple of outliers, the PE now isn't that different from his first numbers. We tend to see trends that don't exist, or that are minor. Humans are built to make connections between things that aren't connected.