Without getting too technical, growth stocks are analyzed using slightly different metrics. Chief among them is the PEG ratio. PEG = P/E divided by growth in earnings rate. Growth stocks are considered over-valued when the PEG ratio reaches 2.
Google's stock still looks very cheap on a PEG calculation (1.1) even the though the share price is over $600. Apple's is about at 1.7. Forward earnings is what is important to fast growing companies, not the P/E (which is looking backwards).
Without getting too technical, growth stocks are analyzed using slightly different metrics. Chief among them is the PEG ratio. PEG = P/E divided by growth in earnings rate. Growth stocks are considered over-valued when the PEG ratio reaches 2.
Google's stock still looks very cheap on a PEG calculation (1.1) even the though the share price is over $600. Apple's is about at 1.7. Forward earnings is what is important to fast growing companies, not the P/E (which is looking backwards).
EPS acceleration and EPS surprises are other factors.
Of course, but the problem with that calculation is that it follows the ads for investment houses:
"Past performance is no proof of future results."
And so, when one is talking about such high P/E's, the fall is great if performance is expected to not be there. That's what happened to Apple when it reached 86 the other year, and slid to 50. The lack of new iPods caused investors to get nervous. Combined with the poor performance of the market in general, that big slide shouldn't have been surprising, but it was.
That's one of the reasons why Apple is now looking for a way to book over a 24 month period. The markets love it. Slow and steady, but sure.
And honestly, I've never trusted the logic behind PEG.
Of course, but the problem with that calculation is that it follows the ads for investment houses:
"Past performance is no proof of future results."
And so, when one is talking about such high P/E's, the fall is great if performance is expected to not be there. That's what happened to Apple when it reached 86 the other year, and slid to 50. The lack of new iPods caused investors to get nervous. Combined with the poor performance of the market in general, that big slide shouldn't have been surprising, but it was.
That's one of the reasons why Apple is now looking for a way to book over a 24 month period. The markets love it. Slow and steady, but sure.
And honestly, I've never trusted the logic behind PEG.
Well, the other part of what Apple has done was a move toward steady (non-seasonal) growth via subscriptions (iPhone) and impulse purchases (iTunes). Improving incremental growth with movie rentals and other subscription-style services will keep Apple out of vast swings in the stock price between product introductions.
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Google's stock still looks very cheap on a PEG calculation (1.1) even the though the share price is over $600. Apple's is about at 1.7. Forward earnings is what is important to fast growing companies, not the P/E (which is looking backwards).
http://finapps.forbes.com/finapps/js...s.jsp?tkr=AAPL
EPS acceleration and EPS surprises are other factors.
Without getting too technical, growth stocks are analyzed using slightly different metrics. Chief among them is the PEG ratio. PEG = P/E divided by growth in earnings rate. Growth stocks are considered over-valued when the PEG ratio reaches 2.
Google's stock still looks very cheap on a PEG calculation (1.1) even the though the share price is over $600. Apple's is about at 1.7. Forward earnings is what is important to fast growing companies, not the P/E (which is looking backwards).
http://finapps.forbes.com/finapps/js...s.jsp?tkr=AAPL
EPS acceleration and EPS surprises are other factors.
Of course, but the problem with that calculation is that it follows the ads for investment houses:
"Past performance is no proof of future results."
And so, when one is talking about such high P/E's, the fall is great if performance is expected to not be there. That's what happened to Apple when it reached 86 the other year, and slid to 50. The lack of new iPods caused investors to get nervous. Combined with the poor performance of the market in general, that big slide shouldn't have been surprising, but it was.
That's one of the reasons why Apple is now looking for a way to book over a 24 month period. The markets love it. Slow and steady, but sure.
And honestly, I've never trusted the logic behind PEG.
Often, a company has more value in the individual parts, and as you say, when broken up would be worth more.
But, the XBox would disappear without MS's deep pockets. It's a failure as a business.
Yes, that's the point. MS needs to spin off the money losers. I'm probably going to get rid of MSFT soon, just to claim the loss on my taxes.
Of course, but the problem with that calculation is that it follows the ads for investment houses:
"Past performance is no proof of future results."
And so, when one is talking about such high P/E's, the fall is great if performance is expected to not be there. That's what happened to Apple when it reached 86 the other year, and slid to 50. The lack of new iPods caused investors to get nervous. Combined with the poor performance of the market in general, that big slide shouldn't have been surprising, but it was.
That's one of the reasons why Apple is now looking for a way to book over a 24 month period. The markets love it. Slow and steady, but sure.
And honestly, I've never trusted the logic behind PEG.
Well, the other part of what Apple has done was a move toward steady (non-seasonal) growth via subscriptions (iPhone) and impulse purchases (iTunes). Improving incremental growth with movie rentals and other subscription-style services will keep Apple out of vast swings in the stock price between product introductions.
And, look at Goggle's P/E.
I think Google is badly overpriced, but that is just one person's view...
I think Google is badly overpriced, but that is just one person's view...
I don't think you are alone, but unfortunately, the current stockholders disagree.
I don't think you are alone, but unfortunately, the current stockholders disagree.
Ah, I agree, but there are two sides to every trade.....
I think Google is badly overpriced, but that is just one person's view...
That's sort of what I was alluding to.
Growth stocks are considered over-valued when the PEG ratio reaches 2.
By whom? Can you cite any credible academic research on the PEG ratio?