I'm not so sure. They buy into trends. If the momentum comes back, sure.
They still have to do some due diligence. And they can't ignore Apple's bottom line. I think the NASDAQ adjustment was a mistake. If anything, it should have given Apple a larger portion. Ms's valuation is shrinking, not growing. I believe this was a political move.
At any rate, it won't have a lasting effect on Apple shares. I feel sure about that.
Excellent work once again from Andy. Thanks for the reference. SO, where's our dividend?
Yes, I tend to agree with the analysis, though I think perhaps he's overstated the possible outcomes of AAPL trading under 300. The next few days will tell whether the markets are convinced by the growth numbers Apple continues to post or are going to continue to compress valuations to ridiculously low levels. One thing I've learned about the markets from hard experience: just because a thing is ridiculous, doesn't mean it won't happen.
I enjoyed Andy's article, too. I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is, and by that I mean, this was an unusual quarter for Apple, with 3 big shocks in a row right before earnings that dragged its p/e down to 18 . Given the extraordinary nature of these events and their timing just before earnings, it seems reasonable that the stock will take a while to recover beyond a p/e of 18. After all, now that the 12 month eps is 20.98 , in order for Apple to move from its closing price today of 342.41 to maintain a p/e of 18 tomorrow, it will have to rise 10%. that's a lot to ask . I think that it will make its way closer to a p/e of 20 over the next few months, though.
One thing I found interesting, assuming it wasn't a mistake, was the statement that cash and investments were $55.8 billion. Considering that they generated over $6 billion in cash this quarter, I would have expected it to be 68.5 billion. They're spending money this year, as they explained, but this discrepancy is interesting.
I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is ...
I agree with you. As an AAPL investor my emotions tell me the P/E "should" go above 20, but as a realist I think it's unlikely. I expect the P and the E to climb in the next few years, but I expect the P/E to decline. I'm not sure if this is because of the Law of Large Numbers, but rather it's because of the fact there are a finite number of dollars in the world. The bigger AAPL's market cap, the more speculative dollars it requires for a large P/E, and it's only natural that investors will speculate more freely with smaller amounts of money. (Maybe it's a corollary to the LoLN.)
The breakdown is: Cash and Equivalents $15,978, Short-term Marketable Securities $13,256, and Long-term Marketable Securities $36,533, for a total 'cash' balance of $65,767 ≈ $65.8B.
The breakdown is: Cash and Equivalents $15,978, Short-term Marketable Securities $13,256, and Long-term Marketable Securities $36,533, for a total 'cash' balance of $65,767 ≈ $65.8B.
Someone mis-spoke.
That seems closer to what I expected. I was watching three live blogs on this though, and all three said $55.8. I figured if all three said that, it should be correct.
I enjoyed Andy's article, too. I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is, and by that I mean, this was an unusual quarter for Apple, with 3 big shocks in a row right before earnings that dragged its p/e down to 18 . Given the extraordinary nature of these events and their timing just before earnings, it seems reasonable that the stock will take a while to recover beyond a p/e of 18. After all, now that the 12 month eps is 20.98 , in order for Apple to move from its closing price today of 342.41 to maintain a p/e of 18 tomorrow, it will have to rise 10%. that's a lot to ask . I think that it will make its way closer to a p/e of 20 over the next few months, though.
Andy wasn't saying that it violated some rule. He wasn't hinting that either. It's just that Apple is undervalued by a lot. His reasoning is pretty good. If the stock drops below some value, with the cash on hand, the high net margins, and the forward earnings potential and sales increases could make the company a takeover target. Not to say it would happen, but I've seen stranger deals made than that.
In addition a companies valuation isn't normally an island. It's also relative to how other companies in the industry are valued according to their performance and expectations. With this metric, again, Apple is undervalued.
Rising 10% isn't a lot when you consider it recently dropped over 10%.
I enjoyed Andy's article, too. I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is, and by that I mean, this was an unusual quarter for Apple, with 3 big shocks in a row right before earnings that dragged its p/e down to 18 . Given the extraordinary nature of these events and their timing just before earnings, it seems reasonable that the stock will take a while to recover beyond a p/e of 18. After all, now that the 12 month eps is 20.98 , in order for Apple to move from its closing price today of 342.41 to maintain a p/e of 18 tomorrow, it will have to rise 10%. that's a lot to ask . I think that it will make its way closer to a p/e of 20 over the next few months, though.
Not a rule, but at the lower end of a historical range, which creates a floor he reasons that AAPL has no reason to break through. So far so good, but what Andy doesn't say in this article at least (but the chart shows somewhat) is that AAPL's P/E has been compressing for some time now. You can also see how much investors are discounting earnings growth by looking at PEG, which is at a quite low 0.74. For points of comparison, try DELL at 1.87, MSFT at 0.96, GE at 1.26 and AMZN at 2.21. If you go ex-cash the numbers are even more dramatic. It's been that way for a long time -- investors just don't seem to be entirely buying Apple's earnings growth story, no matter how long it goes on. It's not very logical, but nobody said the markets are logical.
Andy wasn't saying that it violated some rule. He wasn't hinting that either. It's just that Apple is undervalued by a lot. His reasoning is pretty good. If the stock drops below some value, with the cash on hand, the high net margins, and the forward earnings potential and sales increases could make the company a takeover target. Not to say it would happen, but I've seen stranger deals made than that.
In addition a companies valuation isn't normally an island. It's also relative to how other companies in the industry are valued according to their performance and expectations. With this metric, again, Apple is undervalued.
Rising 10% isn't a lot when you consider it recently dropped over 10%.
Sure he was. To say a stock is undervalued is meaningless except by reference to some standard or frame of reference one has in mind to organize or 'rule' the data.
The question is, if investors ignore this standard in pricing a stock, are they being irrational? If the metrics that are used to determine a stock's fair value don't jibe with its actual price, is it the responsibility of investors to get in line with those metrics, or might it be more useful to transform and enrich those standards so that they better take into account the actual behavior of investors? Isn't it like rules of grammar, wherein fixed bibles of language rules are created in an attempt to corral an organic and constantly evolving instrument of communication?
I believe the adage 'the customer is always right' applies to stock valuation. It may be tempting to dismiss investor behavior that doesn't conform to the conventions that are assumed to determine a stock's value as due to ignorance or manipulation, but this can blind one to legitimate and important factors that come into play in real-world perception of company value. It could turn out to be the accepted metrics which aren't quite as 'rational' as they were thought to be.
Sure he was. To say a stock is undervalued is meaningless except by reference to some standard or frame of reference one has in mind to organize or 'rule' the data.
The question is, if investors ignore this standard in pricing a stock, are they being irrational? If the metrics that are used to determine a stock's fair value don't jibe with its actual price, is it the responsibility of investors to get in line with those metrics, or might it be more useful to transform and enrich those standards so that they better take into account the actual behavior of investors? Isn't it like rules of grammar, wherein fixed bibles of language rules are created in an attempt to corral an organic and constantly evolving instrument of communication?
I believe the adage 'the customer is always right' applies to stock valuation. It may be tempting to dismiss investor behavior that doesn't conform to the conventions that are assumed to determine a stock's value as due to ignorance or manipulation, but this can blind one to legitimate and important factors that come into play in real-world perception of company value. It could turn out to be the accepted metrics which aren't quite as 'rational' as they were thought to be.
You're stretching things here. I don't think you actually understand what we're saying.
You're stretching things here. I don't think you actually understand what we're saying.
Perhaps, but I do tend to agree with this:
Quote:
Originally Posted by joshdean
I believe the adage 'the customer is always right' applies to stock valuation. It may be tempting to dismiss investor behavior that doesn't conform to the conventions that are assumed to determine a stock's value as due to ignorance or manipulation, but this can blind one to legitimate and important factors that come into play in real-world perception of company value. It could turn out to be the accepted metrics which aren't quite as 'rational' as they were thought to be.
Stocks are worth what the markets say they are worth at any given moment, not any more nor any less. This concept should be obvious to any investor, but apparently not -- I've had to point this out many times myself, mainly to frustrated novice investors who prefer to attribute every move to the downside to some sort of conspiracy. Market pricing is all about fear, greed and (if you make the effort) educated guesswork. The markets have been guessing for some time that Apple's earnings growth story can't go on forever -- the rule of large numbers, and all that. This is hardly surprising, given the historic nature of this growth. So PE gets compressed as confidence in continuing this growth rate wanes.
Even fans of Apple have to acknowledge that the company is in uncharted territory. They are becoming a industrial juggernaut of virtually unheard of proportions. Nobody can rightly know how this will turn out, so the markets collectively hedge their bets.
Stocks are worth what the markets say they are worth at any given moment, not any more nor any less. This concept should be obvious to any investor, but apparently not -- I've had to point this out many times myself, mainly to frustrated novice investors who prefer to attribute every move to the downside to some sort of conspiracy. Market pricing is all about fear, greed and (if you make the effort) educated guesswork. The markets have been guessing for some time that Apple's earnings growth story can't go on forever -- the rule of large numbers, and all that. This is hardly surprising, given the historic nature of this growth. So PE gets compressed as confidence in continuing this growth rate wanes.
Even fans of Apple have to acknowledge that the company is in uncharted territory. They are becoming a industrial juggernaut of virtually unheard of proportions. Nobody can rightly know how this will turn out, so the markets collectively hedge their bets.
That's obvious though. It holds true for housing prices too. Actually, it holds true for every product and service, so it's not a major observation. But nevertheless, the market normally corrects for companies that are too over or undervalued. They don't get it 100% correct, but over time, they come close enough. And right now, going from the numbers at this time, Apple is at about a PE of 20. We had a short period of unbalance, and it's moving back in balance. Over a longer time period, that balance will materialize. Over short time periods, anything can happen.
I wish I had some more liquidity, because when the stock was below 332 I was thinking of buying more, but I didn't have enough cash to buy as much as I thought worthwhile, as I had other plans.
I think that people who look at these very short deviations, and think something significant is meant by them, are people who don't understand how any of this works. I came across the same people during the recession, when fund managers were dumping the stock. I happily bought into their losses.
That's obvious though. It holds true for housing prices too. Actually, it holds true for every product and service, so it's not a major observation. But nevertheless, the market normally corrects for companies that are too over or undervalued. They don't get it 100% correct, but over time, they come close enough. And right now, going from the numbers at this time, Apple is at about a PE of 20. We had a short period of unbalance, and it's moving back in balance. Over a longer time period, that balance will materialize. Over short time periods, anything can happen.
I wish I had some more liquidity, because when the stock was below 332 I was thinking of buying more, but I didn't have enough cash to buy as much as I thought worthwhile, as I had other plans.
I think that people who look at these very short deviations, and think something significant is meant by them, are people who don't understand how any of this works. I came across the same people during the recession, when fund managers were dumping the stock. I happily bought into their losses.
Fund managers are on a completely different program. Often, literally a computer program. They're happy to net a few percentage points on any given stock in any given quarter. Looks good on their books at the end of the quarter.
I'm sure we've discussed this before, but I've never really been on board with the concept of overvalued and undervalued. The market sets value every day, so in reality we are collectively setting the exact value of any stock at any given moment. Looking at it any other way IMO is a formula for driving yourself crazy.
I'm not sure if yesterday's numbers are factored into the currently posted PE for AAPL yet.
Fund managers are on a completely different program. Often, literally a computer program. They're happy to net a few percentage points on any given stock in any given quarter. Looks good on their books at the end of the quarter.
I'm sure we've discussed this before, but I've never really been on board with the concept of overvalued and undervalued. The market sets value every day, so in reality we are collectively setting the exact value of any stock at any given moment. Looking at it any other way IMO is a formula for driving yourself crazy.
I'm not sure if yesterday's numbers are factored into the currently posted PE for AAPL yet.
We can discuss what "value" actually means, I suppose. But as I've been saying, it tends to move about where it should. At least that's true for most companies. I really don't understand how so e companiesmcan be valued so highly that they have PEs of 50, or 100, or even higher. We can look at Sirius XM Radio, with a PE of 193. This is a company with very shaky financials, an uncertain growth cycle, and a dependence on one major show for most of its profits. So it it properly valued just because its stock is so high? Not really. It could collapse at any time, and likely will.
Fund managers are on a completely different program. Often, literally a computer program. They're happy to net a few percentage points on any given stock in any given quarter. Looks good on their books at the end of the quarter.
I'm sure we've discussed this before, but I've never really been on board with the concept of overvalued and undervalued. The market sets value every day, so in reality we are collectively setting the exact value of any stock at any given moment. Looking at it any other way IMO is a formula for driving yourself crazy.
I'm not sure if yesterday's numbers are factored into the currently posted PE for AAPL yet.
If you think Apple was undervalued as of Tuesday, you may have to prepare yourself for a new era of dissonance with investors. It looks to me, as of market close on April 21, like 16-17 will be the new 'normal' p/e for Apple. Here's a list of highest and lowest p/e's since Oct. 2009. Notice that for each quarter, p/e tends to peak in either the run-up to earnings or just after earnings.It's hard to imagine what catalysts between now and September would be able to raise it much beyond 18 if yesterday's blowout earnings couldn't do it.Is there any possibility that the qqq rebalancing is still having an effect? If not, we may be witnessing another sea-change in investor sentiment concerning Apple. Call it undervaluation if you want, but don't hold your breath waiting for it to to make its way back to the p/e rang of 20.
We can discuss what "value" actually means, I suppose. But as I've been saying, it tends to move about where it should. At least that's true for most companies. I really don't understand how so e companiesmcan be valued so highly that they have PEs of 50, or 100, or even higher. We can look at Sirius XM Radio, with a PE of 193. This is a company with very shaky financials, an uncertain growth cycle, and a dependence on one major show for most of its profits. So it it properly valued just because its stock is so high? Not really. It could collapse at any time, and likely will.
I see you're still looking for logic.
Truly, it is difficult to know how a PE in stratosphere can be justified by any logic, but again, the market is speaking in the only way it knows how. I suppose you'd have to call it a willingness on the part of investors to make a long-shot bet, with the hopes of getting in early on a big future growth story. I'll bet RIMM was selling in this PE range ten or so years ago. I actually had that stock on my watch list for a long time, before anybody had heard of the Blackberry, but I thought it was too risky and expensive, so I never bought in. A small bet in that direction would have netted me handsomely. Also, when I bought AAPL in 1997 it posted a PE of N/A since they'd had unprofitable quarters, many of them actually. That wasn't a purchase made on the fundamentals. It was made by feel, not logic.
If you think Apple was undervalued as of Tuesday, you may have to prepare yourself for a new era of dissonance with investors. It looks to me, as of market close on April 21, like 16-17 will be the new 'normal' p/e for Apple. Here's a list of highest and lowest p/e's since Oct. 2009. Notice that for each quarter, p/e tends to peak in either the run-up to earnings or just after earnings.It's hard to imagine what catalysts between now and September would be able to raise it much beyond 18 if yesterday's blowout earnings couldn't do it.Is there any possibility that the qqq rebalancing is still having an effect? If not, we may be witnessing another sea-change in investor sentiment concerning Apple. Call it undervaluation if you want, but don't hold your breath waiting for it to to make its way back to the p/e rang of 20.
What you have charted here so well is the compression of AAPL's PE over the last few years. Some of the analysts are being honest in saying that even if this process continues, the stock should still rise, so long as earning growth outstrips the multiples compression. As investors we'd just have get used to the idea that doubling earnings does not double stock price. So then what happens when earnings don't double? Now, there's the rub.
What we seem to be witnessing is the transition of AAPL from growth to value. Painful to watch while it's still very much a growth story.
Truly, it is difficult to know how a PE in stratosphere can be justified by any logic, but again, the market is speaking in the only way it knows how. I suppose you'd have to call it a willingness on the part of investors to make a long-shot bet, with the hopes of getting in early on a big future growth story. I'll bet RIMM was selling in this PE range ten or so years ago. I actually had that stock on my watch list for a long time, before anybody had heard of the Blackberry, but I thought it was too risky and expensive, so I never bought in. A small bet in that direction would have netted me handsomely. Also, when I bought AAPL in 1997 it posted a PE of N/A since they'd had unprofitable quarters, many of them actually. That wasn't a purchase made on the fundamentals. It was made by feel, not logic.
The same old apologists, not apologizing!
I'm looking for some consistency. I tend to be consistent. That's the way you make money, as long as your ideas work, of course. I had Apple in the '90's, on and off, and did pretty well. But then, almost anything in the mid to late '90's made money.
I don't see a couple of points in PE as being a problem. In fact, I never like a company to get too far ahead. Whenever Apple was sitting at 35, I became nervous. I do think Apple should be at 20. I would feel comfortable at that. Apple isn't an old line manufacturing company that sits at 10. And 10 is low by historical standards.
The main reason why Apple isn't higher is the reason we all know. The law of large numbers. There were people who felt Apple would bump against it last year, but they didn't. So they were (are) sure they would hit it this year, but so far, they've gone in the other direction.
Unless Apple comes up with a major new(for them) product category, they will likely hit it next year. I can see sales of the phone and iPad increasing by a great amount, but it would likely limit Apple's growth in 2012 to no more than about 25 to 40%. a lot lower than this year. But that's still an enormous amount for a company so large. Then growth will slowly taper off.
It's still is no reason for the PE to drop now. If next quarter is another blowout, then I'm sure the stock will rise quickly for the rest of the year. I still expect at least $450 by the end of the calendar year.
Quote:
What you have charted here so well is the compression of AAPL's PE over the last few years. Some of the analysts are being honest in saying that even if this process continues, the stock should still rise, so long as earning growth outstrips the multiples compression. As investors we'd just have get used to the idea that doubling earnings does not double stock price. So then what happens when earnings don't double? Now, there's the rub.
What we seem to be witnessing is the transition of AAPL from growth to value. Painful to watch while it's still very much a growth story.
Of course, what he charted is arbitrary. When that's done, the numbers can show anything. In addition, except for a couple of outliers, the PE now isn't that different from his first numbers. We tend to see trends that don't exist, or that are minor. Humans are built to make connections between things that aren't connected.
Of course, what he charted is arbitrary. When that's done, the numbers can show anything. In addition, except for a couple of outliers, the PE now isn't that different from his first numbers. We tend to see trends that don't exist, or that are minor. Humans are built to make connections between things that aren't connected.
The difference between a PE of 18 and 20 is about 20%, or the difference between AAPL trading at $350 or $420. So I'm going to call that significant. Just a couple of years ago, AAPL was routinely trading at multiples between 20 and 24. Those kinds of multiples can easily be justified today, based on EPS growth. We just have to know we're not going to get them anymore, and in reality, the current trend has AAPL trading at multiples in the low teens within a few years at most. So what you've got essentially is a growth company trading near value multiples and trending steadily closer to value multiples.
Comments
Numbers look great to me but I wonder how the street will view them.
The iPad number isn't astronomically high so some analysts may fret over this.
The glass is 14% empty. The sky is on it's way down. Apple is doomed.
I'm not so sure. They buy into trends. If the momentum comes back, sure.
They still have to do some due diligence. And they can't ignore Apple's bottom line. I think the NASDAQ adjustment was a mistake. If anything, it should have given Apple a larger portion. Ms's valuation is shrinking, not growing. I believe this was a political move.
At any rate, it won't have a lasting effect on Apple shares. I feel sure about that.
Excellent work once again from Andy. Thanks for the reference. SO, where's our dividend?
Yes, I tend to agree with the analysis, though I think perhaps he's overstated the possible outcomes of AAPL trading under 300. The next few days will tell whether the markets are convinced by the growth numbers Apple continues to post or are going to continue to compress valuations to ridiculously low levels. One thing I've learned about the markets from hard experience: just because a thing is ridiculous, doesn't mean it won't happen.
I enjoyed Andy's article, too. I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is, and by that I mean, this was an unusual quarter for Apple, with 3 big shocks in a row right before earnings that dragged its p/e down to 18 . Given the extraordinary nature of these events and their timing just before earnings, it seems reasonable that the stock will take a while to recover beyond a p/e of 18. After all, now that the 12 month eps is 20.98 , in order for Apple to move from its closing price today of 342.41 to maintain a p/e of 18 tomorrow, it will have to rise 10%. that's a lot to ask . I think that it will make its way closer to a p/e of 20 over the next few months, though.
One thing I found interesting, assuming it wasn't a mistake, was the statement that cash and investments were $55.8 billion. Considering that they generated over $6 billion in cash this quarter, I would have expected it to be 68.5 billion. They're spending money this year, as they explained, but this discrepancy is interesting.
Don't know who is right but Ars is reporting 65.8 billion in cash and securities. http://arstechnica.com/apple/news/20...nings-call.ars
Page 3 of live blog.
I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is ...
I agree with you. As an AAPL investor my emotions tell me the P/E "should" go above 20, but as a realist I think it's unlikely. I expect the P and the E to climb in the next few years, but I expect the P/E to decline. I'm not sure if this is because of the Law of Large Numbers, but rather it's because of the fact there are a finite number of dollars in the world. The bigger AAPL's market cap, the more speculative dollars it requires for a large P/E, and it's only natural that investors will speculate more freely with smaller amounts of money. (Maybe it's a corollary to the LoLN.)
Don't know who is right but Ars is reporting 65.8 billion in cash and securities. http://arstechnica.com/apple/news/20...nings-call.ars
Page 3 of live blog.
That is, indeed, the right number: http://www.apple.com/pr/library/2011/04/20results.html
The breakdown is: Cash and Equivalents $15,978, Short-term Marketable Securities $13,256, and Long-term Marketable Securities $36,533, for a total 'cash' balance of $65,767 ≈ $65.8B.
Someone mis-spoke.
That is, indeed, the right number: http://www.apple.com/pr/library/2011/04/20results.html
The breakdown is: Cash and Equivalents $15,978, Short-term Marketable Securities $13,256, and Long-term Marketable Securities $36,533, for a total 'cash' balance of $65,767 ≈ $65.8B.
Someone mis-spoke.
That seems closer to what I expected. I was watching three live blogs on this though, and all three said $55.8. I figured if all three said that, it should be correct.
I enjoyed Andy's article, too. I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is, and by that I mean, this was an unusual quarter for Apple, with 3 big shocks in a row right before earnings that dragged its p/e down to 18 . Given the extraordinary nature of these events and their timing just before earnings, it seems reasonable that the stock will take a while to recover beyond a p/e of 18. After all, now that the 12 month eps is 20.98 , in order for Apple to move from its closing price today of 342.41 to maintain a p/e of 18 tomorrow, it will have to rise 10%. that's a lot to ask . I think that it will make its way closer to a p/e of 20 over the next few months, though.
Andy wasn't saying that it violated some rule. He wasn't hinting that either. It's just that Apple is undervalued by a lot. His reasoning is pretty good. If the stock drops below some value, with the cash on hand, the high net margins, and the forward earnings potential and sales increases could make the company a takeover target. Not to say it would happen, but I've seen stranger deals made than that.
In addition a companies valuation isn't normally an island. It's also relative to how other companies in the industry are valued according to their performance and expectations. With this metric, again, Apple is undervalued.
Rising 10% isn't a lot when you consider it recently dropped over 10%.
I enjoyed Andy's article, too. I don't think there's much point, though, in going through the ramifications of a drop below a p/e of 18 as if it were a violation of some sacred rule. It is what it is, and by that I mean, this was an unusual quarter for Apple, with 3 big shocks in a row right before earnings that dragged its p/e down to 18 . Given the extraordinary nature of these events and their timing just before earnings, it seems reasonable that the stock will take a while to recover beyond a p/e of 18. After all, now that the 12 month eps is 20.98 , in order for Apple to move from its closing price today of 342.41 to maintain a p/e of 18 tomorrow, it will have to rise 10%. that's a lot to ask . I think that it will make its way closer to a p/e of 20 over the next few months, though.
Not a rule, but at the lower end of a historical range, which creates a floor he reasons that AAPL has no reason to break through. So far so good, but what Andy doesn't say in this article at least (but the chart shows somewhat) is that AAPL's P/E has been compressing for some time now. You can also see how much investors are discounting earnings growth by looking at PEG, which is at a quite low 0.74. For points of comparison, try DELL at 1.87, MSFT at 0.96, GE at 1.26 and AMZN at 2.21. If you go ex-cash the numbers are even more dramatic. It's been that way for a long time -- investors just don't seem to be entirely buying Apple's earnings growth story, no matter how long it goes on. It's not very logical, but nobody said the markets are logical.
Andy wasn't saying that it violated some rule. He wasn't hinting that either. It's just that Apple is undervalued by a lot. His reasoning is pretty good. If the stock drops below some value, with the cash on hand, the high net margins, and the forward earnings potential and sales increases could make the company a takeover target. Not to say it would happen, but I've seen stranger deals made than that.
In addition a companies valuation isn't normally an island. It's also relative to how other companies in the industry are valued according to their performance and expectations. With this metric, again, Apple is undervalued.
Rising 10% isn't a lot when you consider it recently dropped over 10%.
Sure he was. To say a stock is undervalued is meaningless except by reference to some standard or frame of reference one has in mind to organize or 'rule' the data.
The question is, if investors ignore this standard in pricing a stock, are they being irrational? If the metrics that are used to determine a stock's fair value don't jibe with its actual price, is it the responsibility of investors to get in line with those metrics, or might it be more useful to transform and enrich those standards so that they better take into account the actual behavior of investors? Isn't it like rules of grammar, wherein fixed bibles of language rules are created in an attempt to corral an organic and constantly evolving instrument of communication?
I believe the adage 'the customer is always right' applies to stock valuation. It may be tempting to dismiss investor behavior that doesn't conform to the conventions that are assumed to determine a stock's value as due to ignorance or manipulation, but this can blind one to legitimate and important factors that come into play in real-world perception of company value. It could turn out to be the accepted metrics which aren't quite as 'rational' as they were thought to be.
Sure he was. To say a stock is undervalued is meaningless except by reference to some standard or frame of reference one has in mind to organize or 'rule' the data.
The question is, if investors ignore this standard in pricing a stock, are they being irrational? If the metrics that are used to determine a stock's fair value don't jibe with its actual price, is it the responsibility of investors to get in line with those metrics, or might it be more useful to transform and enrich those standards so that they better take into account the actual behavior of investors? Isn't it like rules of grammar, wherein fixed bibles of language rules are created in an attempt to corral an organic and constantly evolving instrument of communication?
I believe the adage 'the customer is always right' applies to stock valuation. It may be tempting to dismiss investor behavior that doesn't conform to the conventions that are assumed to determine a stock's value as due to ignorance or manipulation, but this can blind one to legitimate and important factors that come into play in real-world perception of company value. It could turn out to be the accepted metrics which aren't quite as 'rational' as they were thought to be.
You're stretching things here. I don't think you actually understand what we're saying.
You're stretching things here. I don't think you actually understand what we're saying.
Perhaps, but I do tend to agree with this:
I believe the adage 'the customer is always right' applies to stock valuation. It may be tempting to dismiss investor behavior that doesn't conform to the conventions that are assumed to determine a stock's value as due to ignorance or manipulation, but this can blind one to legitimate and important factors that come into play in real-world perception of company value. It could turn out to be the accepted metrics which aren't quite as 'rational' as they were thought to be.
Stocks are worth what the markets say they are worth at any given moment, not any more nor any less. This concept should be obvious to any investor, but apparently not -- I've had to point this out many times myself, mainly to frustrated novice investors who prefer to attribute every move to the downside to some sort of conspiracy. Market pricing is all about fear, greed and (if you make the effort) educated guesswork. The markets have been guessing for some time that Apple's earnings growth story can't go on forever -- the rule of large numbers, and all that. This is hardly surprising, given the historic nature of this growth. So PE gets compressed as confidence in continuing this growth rate wanes.
Even fans of Apple have to acknowledge that the company is in uncharted territory. They are becoming a industrial juggernaut of virtually unheard of proportions. Nobody can rightly know how this will turn out, so the markets collectively hedge their bets.
Perhaps, but I do tend to agree with this:
Stocks are worth what the markets say they are worth at any given moment, not any more nor any less. This concept should be obvious to any investor, but apparently not -- I've had to point this out many times myself, mainly to frustrated novice investors who prefer to attribute every move to the downside to some sort of conspiracy. Market pricing is all about fear, greed and (if you make the effort) educated guesswork. The markets have been guessing for some time that Apple's earnings growth story can't go on forever -- the rule of large numbers, and all that. This is hardly surprising, given the historic nature of this growth. So PE gets compressed as confidence in continuing this growth rate wanes.
Even fans of Apple have to acknowledge that the company is in uncharted territory. They are becoming a industrial juggernaut of virtually unheard of proportions. Nobody can rightly know how this will turn out, so the markets collectively hedge their bets.
That's obvious though. It holds true for housing prices too. Actually, it holds true for every product and service, so it's not a major observation. But nevertheless, the market normally corrects for companies that are too over or undervalued. They don't get it 100% correct, but over time, they come close enough. And right now, going from the numbers at this time, Apple is at about a PE of 20. We had a short period of unbalance, and it's moving back in balance. Over a longer time period, that balance will materialize. Over short time periods, anything can happen.
I wish I had some more liquidity, because when the stock was below 332 I was thinking of buying more, but I didn't have enough cash to buy as much as I thought worthwhile, as I had other plans.
I think that people who look at these very short deviations, and think something significant is meant by them, are people who don't understand how any of this works. I came across the same people during the recession, when fund managers were dumping the stock. I happily bought into their losses.
That's obvious though. It holds true for housing prices too. Actually, it holds true for every product and service, so it's not a major observation. But nevertheless, the market normally corrects for companies that are too over or undervalued. They don't get it 100% correct, but over time, they come close enough. And right now, going from the numbers at this time, Apple is at about a PE of 20. We had a short period of unbalance, and it's moving back in balance. Over a longer time period, that balance will materialize. Over short time periods, anything can happen.
I wish I had some more liquidity, because when the stock was below 332 I was thinking of buying more, but I didn't have enough cash to buy as much as I thought worthwhile, as I had other plans.
I think that people who look at these very short deviations, and think something significant is meant by them, are people who don't understand how any of this works. I came across the same people during the recession, when fund managers were dumping the stock. I happily bought into their losses.
Fund managers are on a completely different program. Often, literally a computer program. They're happy to net a few percentage points on any given stock in any given quarter. Looks good on their books at the end of the quarter.
I'm sure we've discussed this before, but I've never really been on board with the concept of overvalued and undervalued. The market sets value every day, so in reality we are collectively setting the exact value of any stock at any given moment. Looking at it any other way IMO is a formula for driving yourself crazy.
I'm not sure if yesterday's numbers are factored into the currently posted PE for AAPL yet.
Fund managers are on a completely different program. Often, literally a computer program. They're happy to net a few percentage points on any given stock in any given quarter. Looks good on their books at the end of the quarter.
I'm sure we've discussed this before, but I've never really been on board with the concept of overvalued and undervalued. The market sets value every day, so in reality we are collectively setting the exact value of any stock at any given moment. Looking at it any other way IMO is a formula for driving yourself crazy.
I'm not sure if yesterday's numbers are factored into the currently posted PE for AAPL yet.
We can discuss what "value" actually means, I suppose. But as I've been saying, it tends to move about where it should. At least that's true for most companies. I really don't understand how so e companiesmcan be valued so highly that they have PEs of 50, or 100, or even higher. We can look at Sirius XM Radio, with a PE of 193. This is a company with very shaky financials, an uncertain growth cycle, and a dependence on one major show for most of its profits. So it it properly valued just because its stock is so high? Not really. It could collapse at any time, and likely will.
This on Apple, interesting:
http://tech.fortune.cnn.com/2011/04/...ays-its-sorry/
Fund managers are on a completely different program. Often, literally a computer program. They're happy to net a few percentage points on any given stock in any given quarter. Looks good on their books at the end of the quarter.
I'm sure we've discussed this before, but I've never really been on board with the concept of overvalued and undervalued. The market sets value every day, so in reality we are collectively setting the exact value of any stock at any given moment. Looking at it any other way IMO is a formula for driving yourself crazy.
I'm not sure if yesterday's numbers are factored into the currently posted PE for AAPL yet.
If you think Apple was undervalued as of Tuesday, you may have to prepare yourself for a new era of dissonance with investors. It looks to me, as of market close on April 21, like 16-17 will be the new 'normal' p/e for Apple. Here's a list of highest and lowest p/e's since Oct. 2009. Notice that for each quarter, p/e tends to peak in either the run-up to earnings or just after earnings.It's hard to imagine what catalysts between now and September would be able to raise it much beyond 18 if yesterday's blowout earnings couldn't do it.Is there any possibility that the qqq rebalancing is still having an effect? If not, we may be witnessing another sea-change in investor sentiment concerning Apple. Call it undervaluation if you want, but don't hold your breath waiting for it to to make its way back to the p/e rang of 20.
Apple P/E:
(eps:9?)
Oct. 22,2009:22.80
Oct. 30,2009:20.94
Jan. 19,2010:23.90
(eps:10.24)
Jan. 27,2010:20.30
Feb. 4,2010:18.75
Apr 15,2010:24.30
(eps:11.78)
Apr. 23,2010:22.99
May 7, 2010:20.02
June 18,2010:23.26
(eps:13.28)
July 27,2010:19.88
Aug 24,2010:18.06
Oct. 18,2010:23.94
(eps:15.15)
Oct. 20,2010:20.50
Nov. 17,2010:19.83
Jan. 14,2011:23.00
(eps:17.92)
Jan 21,2011:18.23
Jan. 26,2011:19.19
Feb. 16,2011:20.26
Apr. 15,2011:18.27
(eps:20.98)
Apr. 21,2011:16.72
We can discuss what "value" actually means, I suppose. But as I've been saying, it tends to move about where it should. At least that's true for most companies. I really don't understand how so e companiesmcan be valued so highly that they have PEs of 50, or 100, or even higher. We can look at Sirius XM Radio, with a PE of 193. This is a company with very shaky financials, an uncertain growth cycle, and a dependence on one major show for most of its profits. So it it properly valued just because its stock is so high? Not really. It could collapse at any time, and likely will.
I see you're still looking for logic.
Truly, it is difficult to know how a PE in stratosphere can be justified by any logic, but again, the market is speaking in the only way it knows how. I suppose you'd have to call it a willingness on the part of investors to make a long-shot bet, with the hopes of getting in early on a big future growth story. I'll bet RIMM was selling in this PE range ten or so years ago. I actually had that stock on my watch list for a long time, before anybody had heard of the Blackberry, but I thought it was too risky and expensive, so I never bought in. A small bet in that direction would have netted me handsomely. Also, when I bought AAPL in 1997 it posted a PE of N/A since they'd had unprofitable quarters, many of them actually. That wasn't a purchase made on the fundamentals. It was made by feel, not logic.
This on Apple, interesting:
http://tech.fortune.cnn.com/2011/04/...ays-its-sorry/
The same old apologists, not apologizing!
If you think Apple was undervalued as of Tuesday, you may have to prepare yourself for a new era of dissonance with investors. It looks to me, as of market close on April 21, like 16-17 will be the new 'normal' p/e for Apple. Here's a list of highest and lowest p/e's since Oct. 2009. Notice that for each quarter, p/e tends to peak in either the run-up to earnings or just after earnings.It's hard to imagine what catalysts between now and September would be able to raise it much beyond 18 if yesterday's blowout earnings couldn't do it.Is there any possibility that the qqq rebalancing is still having an effect? If not, we may be witnessing another sea-change in investor sentiment concerning Apple. Call it undervaluation if you want, but don't hold your breath waiting for it to to make its way back to the p/e rang of 20.
What you have charted here so well is the compression of AAPL's PE over the last few years. Some of the analysts are being honest in saying that even if this process continues, the stock should still rise, so long as earning growth outstrips the multiples compression. As investors we'd just have get used to the idea that doubling earnings does not double stock price. So then what happens when earnings don't double? Now, there's the rub.
What we seem to be witnessing is the transition of AAPL from growth to value. Painful to watch while it's still very much a growth story.
I see you're still looking for logic.
Truly, it is difficult to know how a PE in stratosphere can be justified by any logic, but again, the market is speaking in the only way it knows how. I suppose you'd have to call it a willingness on the part of investors to make a long-shot bet, with the hopes of getting in early on a big future growth story. I'll bet RIMM was selling in this PE range ten or so years ago. I actually had that stock on my watch list for a long time, before anybody had heard of the Blackberry, but I thought it was too risky and expensive, so I never bought in. A small bet in that direction would have netted me handsomely. Also, when I bought AAPL in 1997 it posted a PE of N/A since they'd had unprofitable quarters, many of them actually. That wasn't a purchase made on the fundamentals. It was made by feel, not logic.
The same old apologists, not apologizing!
I'm looking for some consistency. I tend to be consistent. That's the way you make money, as long as your ideas work, of course. I had Apple in the '90's, on and off, and did pretty well. But then, almost anything in the mid to late '90's made money.
I don't see a couple of points in PE as being a problem. In fact, I never like a company to get too far ahead. Whenever Apple was sitting at 35, I became nervous. I do think Apple should be at 20. I would feel comfortable at that. Apple isn't an old line manufacturing company that sits at 10. And 10 is low by historical standards.
The main reason why Apple isn't higher is the reason we all know. The law of large numbers. There were people who felt Apple would bump against it last year, but they didn't. So they were (are) sure they would hit it this year, but so far, they've gone in the other direction.
Unless Apple comes up with a major new(for them) product category, they will likely hit it next year. I can see sales of the phone and iPad increasing by a great amount, but it would likely limit Apple's growth in 2012 to no more than about 25 to 40%. a lot lower than this year. But that's still an enormous amount for a company so large. Then growth will slowly taper off.
It's still is no reason for the PE to drop now. If next quarter is another blowout, then I'm sure the stock will rise quickly for the rest of the year. I still expect at least $450 by the end of the calendar year.
What you have charted here so well is the compression of AAPL's PE over the last few years. Some of the analysts are being honest in saying that even if this process continues, the stock should still rise, so long as earning growth outstrips the multiples compression. As investors we'd just have get used to the idea that doubling earnings does not double stock price. So then what happens when earnings don't double? Now, there's the rub.
What we seem to be witnessing is the transition of AAPL from growth to value. Painful to watch while it's still very much a growth story.
Of course, what he charted is arbitrary. When that's done, the numbers can show anything. In addition, except for a couple of outliers, the PE now isn't that different from his first numbers. We tend to see trends that don't exist, or that are minor. Humans are built to make connections between things that aren't connected.
Of course, what he charted is arbitrary. When that's done, the numbers can show anything. In addition, except for a couple of outliers, the PE now isn't that different from his first numbers. We tend to see trends that don't exist, or that are minor. Humans are built to make connections between things that aren't connected.
The difference between a PE of 18 and 20 is about 20%, or the difference between AAPL trading at $350 or $420. So I'm going to call that significant. Just a couple of years ago, AAPL was routinely trading at multiples between 20 and 24. Those kinds of multiples can easily be justified today, based on EPS growth. We just have to know we're not going to get them anymore, and in reality, the current trend has AAPL trading at multiples in the low teens within a few years at most. So what you've got essentially is a growth company trading near value multiples and trending steadily closer to value multiples.