Investors should give Apple's Q1 2013 call 'another look,' Barclays says - Page 2

No, it's not rational.

AAPL is better in virtually EVERY financial parameter. The future guidance for AAPL is better. Apple has a defensible position - and has recently made a major push into China.

AMZN, OTOH, is facing stronger competition than it has ever faced as it it losing the sales tax advantage which has been a major driver for them. It's financials are horrible compared to AAPL.

So explain how it's rational for AMZN to be trading at far higher multiples than AAPL.

Multiples of what?  Earnings?  Revenues?  I just gave you a bunch of reasons.  Amazon has good revenue, cash flow, cash from operations, they buy back shares (important!), etc...  EPS isn't everything.  They've also got a great business going, great infrastructure, etc...  

 

Apple is valued fairly when you compare their stock price to ExxonMobil, the only other company with a similar valuation.  The rules are different when your market cap is 100 billion, versus 400+ billion.  

 

And again, don't compare the two.  It's like the proverbial Apples to Oranges comparison...  

1- "The market is always right". It doesn't mean that the market value of a given stock is correct, it means that if the stock plummets, you're better off selling while it's flling and buying back before it goes back up. Good luck guessing.

2- The market, quite obviously, is manipulated by huge players with massive advantages. Unless you're investing over long periods of time (years), you're not playing in a level field.

3- The market suffers from regulation that makes it less favorable to the small-time investor that should, in a capitalist society, be the morally justified user. This has been adressed quite a few imes in multiple developed countries over the last ten years. Each attempt at better regulation has been met by excessive battlelines from the finance industry and the extremely rich (if this regulation is passed, we will have to leave this country/layoff thousands of workers, etc), and has been dropped. The latest case to my knowledge is the French regulation about high frequency trading, which had a great pre-draft, a useless draft, and is on its way to History's trashcan.

Sounds like a plan, then the kid can get other girls knocked-up, send them work at Mcdonalds and live off the profits... /s

Orange is in the telecom business :p

http://shop.orange.co.uk/mobile-phones/iPhone-5-16GB-black

I'm surprised people only look at the money aspect. I go to Amazon all the time, not for the price, but for the reviews. If I want to know how good a jacket is I go to Amazon and see what people have written about it. If I have a widget to sell, I'll sell it through my Amazon account. I regularly use Amazon Video through my Roku box to watch movies. Amazon is so much more than saving 5% on your purchase price, I don't even look at that anymore. It's great to save money, but there's so many other reasons to visit Amazon.

"I'm just trying to illustrate why the market moves the way it does - because it is entirely rational."

 

That's the most ridiculous thing I've read in a while. 

 

You cannot seriously compare Apple to Exxon.  Apple's revenue for year ending 2012 grew 44% from 2011.
 

Markets are rational, it's just not always apparent at the time, for the reason we might think.  

 

And yes, of course you can compare Apple to Exxon - they are the only 2 companies around that same market cap.  And Exxon's revenue was 467 billion in 2011 with 40 billion net income, 111 billion in revenue and 9 billion in net income for the last quarter they reported.  

 

As for Apple growing their revenue 44% year on year, that's impressive, the market is betting they won't do it again.  If you think they will, by all means buy stock, I guarantee, if at this time next year Apple reports a 44% y/y increase and their valuation is the same as it is now, the stock will go up.  But the market is betting that Apple has likely reached their peak.  

If the share values were tied to earnings they could, which is what I was suggesting. Right now they aren't, which is pointless because people are just trading on the perception of worth. It doesn't matter how good Apple does financially, if people don't think they're going to keep improving at a certain rate, they lower their value of them but in the end, people are in it to make money. Apple is making money (unlike Amazon) so it's completely backwards to have investors in them lose money when they do well and have investors in other companies make money when they perform poorly. That is a broken system.

Apple is still doing better than them though. Saying that the market caps make them different is circular reasoning as the market cap is based on the share value. How is it rational that having a high market cap causes share price to fall under certain circumstances but under poorer circumstances causes the share price of a company with a lower market cap to rise?

What you seem to be calling rationality is the determination of investors' perception of worth, which is really not much more deterministic than being able to spot someone's poker face.

If it's so rational then there's a simple, rational explanation for the sharp drop. What is it?

I saw this while I was posting and that is what I expected was the answer to my questions before. I still don't think that justifies a drop otherwise other big companies with poor or no growth would drop too and Apple is still doing really well.

Can you use those two terms to describe the same thing? You can make an informed bet but it doesn't make it entirely rational.

 

Share value HAS to be tied to 'perception of worth' ie. value of the firm.  Markets are valuation mechanisms.  Whether it's a street market in a 3rd world country or capital markets in NY, Hong Kong, Paris and London, markets are systems that determine value (ie. market cap).  

 

If you want Apple to spread the wealth, lobby them to increase the dividend.  Because real income in the form of dividends is how public corporations are supposed to act once they're 'mature'.  

 

I don't know what you know about economics or the financial system (doesn't sound like alot) but what you're proposing simply can't work.  It's akin to trying to impose communism on the capital markets...  

 

 

 

 

Market cap IS value.  Share price is nothing more than market cap divided by outstanding shares.  So value (ie. market cap) is what we care about.  Apple's high market cap didn't cause the share price to fall, rather, Apple reached a level of value that the market didn't think they're worth in the long term.  So they sold their shares, and because of supply/demand dynamics the value of the firm went down.  

 

In the case of Amazon, their valuation is equal to or possibly less than the market thinks the company will be worth in the long term, so the share price rose/stayed high.  

 

Now, valuation determines potential growth because the bigger you are, the harder it is to find growth.  This is a general rule of economics, it's why India is growing faster than the U.S. or Canada, even though the U.S. and Canada are much richer countries.  

 

 

 

 

Dividends are the answer to this.  Microsoft's valuation has been more or less steady because they pay a very healthy dividend (5% yield).  Most large companies that are profitable but not growing pay dividends, so for funds and risk-averse investors, they can invest in these companies and make risk-free income.  

 

If Apple instituted a dividend at 5% yield, you can bet you'd never see their share price dip below that level until the end of time, as long as the dividend gets paid and doesn't decrease.  

 

I guess it does depend on your precise definition of rational, which is something that people from various disciplines can't even agree upon.  I'm using it in the sense of being able to come to a conclusion based on the facts available, in a methodical and educated way.  That's not to say everyone who invests in capital markets behaves rationally, but the vast majority of trading volume in markets does come from professional traders or computers, most of whom invest based on principles of math, economics, and other mostly objective measures.  

 

Some would argue that gambling is irrational, but when I gamble, I know exactly what my odds are, and I can put a value (ie. how much I want to lose) based on how much I'm enjoying the experience of it all.  If I'm at a roulette table, with my wife at my side, a cold drink and having fun, I'm willing to lose alot more money than playing a VLT in some seedy pub.  To me, being irrational means not knowing the consequences of what you're doing, and making a decision without considering all the available information.  Being rational means knowing what the consequences are, and using all available information to make a decision.  

 

Then the 1999-2000 bubble was rational?  Was Toilet.com worth 20 billion dollars?  According to you even those worthless .com companies had real value since the market is ALWAYS rational.

 

Lol, maybe a moment of irrationality?  Much like leading up to 2007?  I mean, I might argue that based on the growth trajectories of some tech companies investors may have had a bit of rationale in valuing so many companies so highly, but obviously they were overly optimistic.  

 

The sharp drop offs were the rational bits.  When people realized what they had was over-valued and sold, dropping the price.  That was rational.  

 

Maybe I slipped a little if I implied that the market is always rational, but it does always return to rationality.  If it has an irrational moment, it will always (eventually) adjust accordingly.  Valuations aren't perfect all the time, but they always return to a level where they are.  Over time the market always adjusts itself to where it should be.  

 

But how long is eventually?  How long can markets stay irrational? Months, years, or decades?

 

i think Amazon's decade of irrational valuation is about to run out.  Their revenue growth of 21% in 2012 is just not enough to justify a 1,000,000 PE.

I think with Amazon we need to look at revenues, and gross income.  Once they reach a certain level of maturity where Mr. Bezos feels it's time to realize profits, then they can be properly valued.  But based on revenues, margins, etc..., I think they're valued slightly optimistically, but I don't think they're terribly over-valued.  Again, when looking at the overall value of a firm P/E isn't the most important measure.  You can always cut costs, it's more difficult to increase sales....

 

But their gross margins are HORRIBLE.  I still don't understand how they get away with misleading profit and loss statements:

 

61 Billion sales

46 Billion cost of sales

25% gross margin

 

But guess what expense they don't include in gross margin.  Fulfillment and content.  How are those things not included in gross margin?  How is the cost of content not part of cost of sales (cost of movie license for streaming).  Now add those 2 items and see what the gross margin looks like:

 

61 billion sales

46 billion cogs

6 billion fulfillment

5 billion content

57 billion REAL cost of sales

7% REAL gross margin

 

With more revenue their fulfillment costs will not go down. They will need to build more warehouses, pay more sales tax, pay more workers, ect. 

 

And this is why they don't have Google's valuation.  They are valued at just over twice their revenue, which is reasonable.  Anyhow, you don't need to invest in Amazon, maybe the bears will be proven right, maybe the bulls will be right.  Maybe Jeff Bezos will just take it private?  

 

Either way, Apple vs. Amazon isn't a valid comparison, investing in one doesn't affect the outcome of investments in the other, and investors need to be informed to be capable of rational judgement.  I'm just trying to explain how things are.  

 

By the way, I've owned Apple shares at various times, never owned Amazon shares.  Currently the only shares I own are in companies listed in Hong Kong...

When you are trading on future potential with the intention to sell, it does have to be based on perceived future growth. I just think the motivation should be to stay with the investment when the company does well. The dividend increase would be an option but possibly not a good one here:

http://www.insidermonkey.com/blog/apple-inc-aapls-dividend-isnt-the-problem-49865/

You're right though, it really has no bearing on the company whether the stock does well or badly. If Apple continues making way more profit as time goes on, it's the loss of investors who dumped the stock and if not, the loss of those who didn't.