Originally Posted by sog35
Amazon has a PE of 570.
Are you telling me that based on what they will do in the next 12 months?
I'm not saying the PE is not calculated using 12 month earnings and Price. I'm saying the actual stock price (a component of the PE ratio) is based on 2 or 3 years or even more of growth.
Amazon's PE ratio of 570 is not justified with what they will do in the next 12 months but rather the next 5 - 10 years.
So if you look at Apple growing at 8% for the next 3 years that would justify a stock price going up by 30%
No, it's based on WHAT THEY DID IN THE LAST 12 MONTHS. As you can plainly see, they hardly make any earnings and the price is rather high in comparison, and for most NORMAL people,t his would be GROSSLY overvalued, but for some reason, people think that this is great stock buy because it always trades at a very high P/E, but I personally wouldn't risk investing in this stock at that high of a P/E ratio. When the .com thing started, there were a LOT of companies that were trading at excessively high P/E ratio because people just wanted to get into internet companies trying to see which is going to be the next big thing. As a result of too much over buying of loser stocks and companies that flopped, we had that big market correction and some of these companies went back down to more reasonable P/E ratios. For some STUPID reason, this is one that STILL has a rather high P/E ratio, but it used to be MUCH higher.
Apple's earnings have done about 15 to 20% over the past year, so assumptions are over the next year, the stock will go up around 15 to 20% which is why a lot of analysts put in about $600 a share (pre split), but they haven't updated those numbers as they only do that only once in a while, and you have to check Yahoo! or whatever to see if they've changed it. Sometimes they change it every quarter or maybe once a year, so you have to see when they do it for a specific company.
Now, if Apple can show more growth because they are entering new product categories in high growth market, A la the SmartTV market, they might increase their earnings beyond 20% and that might change the outlook, but unit they give guidance of that, the analysts will stick with what they know to be a more closer expatiation of what to expect. Obviously, most analysts like to be kind of conservative since they don't want to advise someone that stock is going 30% when there aren't any indications of that, as it pisses investors off if they are grossly out of whack to reality.
The market is something you can't always put in a little box and make generalizations, as each company has to be evaluated by itself and against the same like industry. A lot of people make the mistake of comparing Apple to Google and Microsoft, but the truth is that these three companies compete in the OS wars, but they are listed with the SEC in three entirely different categories and they really shouldn't compare them to one another since they derive their revenues on completely different models. Apple is a Personal Computer company, Google is internet Services, and Microsoft is software.
I hope this helps. So, just compare one stock by its historical data, look what kinds of trends in the share price, earnings, listen to what the company gives as it's challenges, etc. during these conference calls and see if you can pick up on how well the company will really do and it you think that it's going to outperform and do well, then it might. But it takes a LONG time to get the knack of this stuff. I started reading Stock market info and Annual Reports of companies, read books, asked questions, I was addicted CNBC and Financial News Network and other places as well as getting a degree in Finance. So, it's taken a LONG time, and I still learn new things. I do, however, like to listen to Cramer, he's actually pretty good MOST of the time, sometimes he's not, but most of the time I think he's pretty good. He actually gave proof on one of the market collapses before it happened and I didn't want to believe him, but it came true. He downgraded Apple for a short period of time and then identified the best time to reinvest and he was right on target. He actually has liked Apple for a long time, but he kind of knows when to get in and when not to . He's obnoxious to listen to for long periods of time, but he is good to listen to in order to pick things up about how to look at different stocks that don't fit the normal mold.