Originally Posted by paladyr
Its P/E is like 9.5. At $700 it would be around 16.5. There's nothing crazy about that. Microsoft is sitting at almost 18 p/e. Unless you think Apple is the next blackberry and will lose their entire customer base you should be buying!
Exxon's P/E is even lower though and their stock price hasn't gone higher than it was 6 years ago (their P/E was around the same back then). Amazon's P/E is over 3,000 (was over 100 back then):
but their stock price went up 3x in the same period. If you just look at ratios and figure out company value from that, you're just going to get landed with stock that changes very little and be complaining the whole time.
Ultimately, the value that AAPL is trading at is going to have to be based on how traders perceive the future profitability of the company. The only way for it to go up is if Apple somehow increases earnings considerably or rather does something that makes traders think their profitability will go up. There isn't an easy way for them to do that because they already sustain the best margins in the whole industry.
Amazon makes a lot of revenue and has a strong infrastructure so some think that means that if they just fiddle with the margins, it'll be worthwhile owning.
The question to answer would be what do you think Apple will do in a few years that will make them more profitable than they are today? If your answer is that they'll come out with the next big thing and you don't know what it is yet then you're probably better off not buying the stock now. You need to have a more certain answer than that. The mobile phone market was the biggest market and it's done. The tablet is second for the simple reason that fewer people need a tablet than they need a phone and they typically aren't subsidized with subscriptions.
The tablet market is likely to be similar to the PC market of 350m units per year and Apple will probably be at around 80 million this year. If you assume they'll maintain 50% marketshare, they can grow the iPad units by double to match the iPhone units until it saturates and that can increase company profitability around 20%. Their margins dropped quite a lot already.
I think the best way to look at Apple now is as an industry giant like Microsoft, not as a startup. Microsoft is not likely to do anything new for the reason that they wouldn't know what to do if it smacked them in the face. I think Apple isn't likely to do anything new that's major for the reason that there's nothing major left for them to do. They put a multi-touch unix OS in my pocket, there is no other place on my person they can put a unix OS that would benefit me more.
If the price tops $500, it's still worthwhile for some people buying around $400 but it depends on what growth rate people want. I think some people are waiting for another growth explosion like the iPhone brought about without thinking about what other product has a potential market of 1 billion units a year that allows a unit price of $500+.
Of course, if they did come out with a new product like a TV, that might fool investors for a short time but it would crash down again once they saw the shipment volumes.