Originally Posted by Marvin
This is completely wrong and you know it is because you've commented on Amazon's and Tesla's stock. If the stock price was tied to earnings, those stocks would be nowhere near where they are. The values are speculative. Apple is valued at $588b, where is that money? It doesn't exist, it's just what traders think Apple's worth and it can change tomorrow.
Amazon/Tesla are not in the same situation as Apple.
Apple is a mature company. Mature companies need to make profits and increase profits. Amazon/Tesla need to grow revenue.
I'm just talking about Apple.
In 2013 Apple's earnings shrunk - the stock went down
In 2014 earnings grew - stock went up.
It really that simple.
Traders don't have the power to drive the stock price down no matter how hard they try if earnings is growing. The large funds sold when Apple's earnings was tanking. The stock also went down in late 2012/early 2013 because growth and momentum investors exited their positions. In 2010-early 2012 Apple was growing earnings/revenue at over 50%. By mid 2012 Apple was so huge that it was impossible for it to continue to grow 50% each quarter. Thus it was a painful transition from growth to value/income. But that only explains the drop from $700 to $600. The rest of the drop was because of negative profit growth in 2013.
Look at the YoY profit growth. Notice that the stock tanked when earnings was going down.
The stock reached its low point of $385 right after the Q2 2013 earnings with profits shrinking 22% and then below $400 after the Q3 2013 earnings when profits shrunk 28%.
And notice when the stock stabilized. Q4 2013 when the profit shrinkage slowed down to 9% and then flat in Q1 2014. And now it exploded the last 2 quarters with 7% and 10%.
If Apple keeps growing earnings at 10%-15% no way on earth is this stock going to be below $90 or even close to its $55 low in 2013.
It is simple mathematics in the long term. The stock value is based on the present value of future cash flows. You can throw out Amazon/Telsa because those are momentum stocks. But for Apple its earnings that counts.
See chart below for the relationship between Profit Growth and Stock Price
Edited by sog35 - 7/30/14 at 7:56pm