Well, that was a total non-response, which I guess experience suggests I should have expected. I raised lots of points and backed them up with responsible arguments well supported by the "literature." You just steered yourself around them, per usual.
Agree on your first point, but your second point highlights the weaknesses of trying to broadly apply P/E. Of course the alternative many use is PEG, and on that metric AAPL is still quite undervalued, at least if you use trailing growth
And AMZN is vastly overvalued - by almost any standard.
Quote:
Originally Posted by igxqrrl
However, I suspect analysts are assuming that the growth rate simply cannot continue in perpetuity, or even for much longer. It's hard to maintain a 100% growth rate!
Doesn't matter. Even with zero growth rate, AAPL is undervalued.
Quote:
Originally Posted by igxqrrl
My concern is that so much revenue and profit rides on a single product line, with a fickle user-base. But so far the fickle user-base has worked in Apple's favor
Lots of companies rely on single products and are not valued as low as AAPL.
Quote:
Originally Posted by Dr Millmoss
Except that cash is not subtracted from share value to calculate PE (and debt is not added). Stockholders have absolutely no access to this cash unless the company pays a dividend, so the share value minus cash number is purely theoretical and essentially meaningless as a measure of anything.
You are absolutely wrong. It is a very common analysis.
The cash is worth exactly its face value. When you are trying to figure out what the company is worth, any comparison must take into account the cash.
Let's say Apple only had $1 B in cash. Would the share price be the same as it is now? Or if AAPL had $500 B in cash. No effect on share price? Obviously, it would.
Quote:
Originally Posted by Dr Millmoss
Dividends are flat taxed at 15% (even less for very low earners), which is way less than most of us pay for earned income. As we know this is the aspect of the tax code that's helped the rich get way richer in recent years. So now I hear people who I presume are not super-wealthy saying that they might not want this cash forced on them because they will have to pay that low tax rate to keep it.
Okay, I'm listening. I'm sure the explanation will be very interesting.
The explanation is that you don't know what you're talking about. Dividends are taxed to the recipient as normal income. You're using the capital gains tax rate - and dividends are NOT taxed at capital gains rates.
You are absolutely wrong. It is a very common analysis.
The cash is worth exactly its face value. When you are trying to figure out what the company is worth, any comparison must take into account the cash.
Let's say Apple only had $1 B in cash. Would the share price be the same as it is now? Or if AAPL had $500 B in cash. No effect on share price? Obviously, it would.
First of all, no it is not a common analysis. Getting a mention here or there occasionally is not a common analysis. And no, it would not make any difference to the share price because the cash does not benefit stockholders and has no impact on earnings. Cash is not a factor in calculating PE or any other stock metric for a reason, and this is the reason.
Quote:
The explanation is that you don't know what you're talking about. Dividends are taxed to the recipient as normal income. You're using the capital gains tax rate - and dividends are NOT taxed at capital gains rates.
Qualified dividends. In fact under the current qualified dividends rules some taxpayers pay a rate of 0%. You might want to look this stuff up before you accuse someone else of not knowing what they are talking about.
Can you show me any serious research that links PEG to anything?
I'm not sure what you're hoping it links to? Much like P/E, PEG is just another tool for comparing valuation.
P/E can be useful for comparing like companies. But the example given earlier was trying to the P/E of Apple vs. Amazon. In those cases, PEG is another widely used tool.
Much like P/E, PEG is just another tool for comparing valuation.
I am afraid you don't really get it.
The P/E ratio (where 'E' is forward earnings) has a very specific meaning that derives from valuation fundamentals, in turn derived from standard DCF models of firm/equity valuation. The value of an enterprise is its expected future Unlevered Free Cash Flows discounted at its cost of capital. If we assume that earnings are a decent proxy for UFCF - which would roughly be the case if a firm does not have too much debt, and Depreciation equals Capex, and Change in Working Capital is zero - then it says that equity value is the sum of expected future earnings discounted at its cost of equity (call it rE). Under assumptions about average long-run growth in earnings (call it 'g'), it can easily shown that:
P/E = 1/[rE ? g].
In other words, the P/E ratio is a very specific statement about a firm's growth-adjusted discount rate. High P/E ratios are associated, in other words, with high expected earnings long-run growth rates, and low (more precisely, lower-than-expected) cost of equity.
Care to tell me what the 'PEG' means, in similar terms?
Quote:
Originally Posted by igxqrrl
P/E can be useful for comparing like companies. But the example given earlier was trying to the P/E of Apple vs. Amazon. In those cases, PEG is another widely used tool.
P/E has nothing necessarily to do with 'like' companies. It can be used to compare the earnings potential, relative to growth potential, of any company/asset relative to any other company/asset.
To say that 'PEG is a widely-used tool' to justify it is like saying 'astrological forecasts are widely read' so the pattern of constellations must affect our lives.
PE when stated as such is always trailing, not forward. Forward PE is always stated as Forward PE and is distinguished from the other number because it is based on a consensus estimate of earnings growth four quarters out instead of actual results of four quarters back.
In any case you are being far too pedantic in your objection to PEG. It is a commonly used measure of stock performance.
Comments
Agree on your first point, but your second point highlights the weaknesses of trying to broadly apply P/E. Of course the alternative many use is PEG, and on that metric AAPL is still quite undervalued, at least if you use trailing growth
And AMZN is vastly overvalued - by almost any standard.
However, I suspect analysts are assuming that the growth rate simply cannot continue in perpetuity, or even for much longer. It's hard to maintain a 100% growth rate!
Doesn't matter. Even with zero growth rate, AAPL is undervalued.
My concern is that so much revenue and profit rides on a single product line, with a fickle user-base. But so far the fickle user-base has worked in Apple's favor
Lots of companies rely on single products and are not valued as low as AAPL.
Except that cash is not subtracted from share value to calculate PE (and debt is not added). Stockholders have absolutely no access to this cash unless the company pays a dividend, so the share value minus cash number is purely theoretical and essentially meaningless as a measure of anything.
You are absolutely wrong. It is a very common analysis.
The cash is worth exactly its face value. When you are trying to figure out what the company is worth, any comparison must take into account the cash.
Let's say Apple only had $1 B in cash. Would the share price be the same as it is now? Or if AAPL had $500 B in cash. No effect on share price? Obviously, it would.
Dividends are flat taxed at 15% (even less for very low earners), which is way less than most of us pay for earned income. As we know this is the aspect of the tax code that's helped the rich get way richer in recent years. So now I hear people who I presume are not super-wealthy saying that they might not want this cash forced on them because they will have to pay that low tax rate to keep it.
Okay, I'm listening. I'm sure the explanation will be very interesting.
The explanation is that you don't know what you're talking about. Dividends are taxed to the recipient as normal income. You're using the capital gains tax rate - and dividends are NOT taxed at capital gains rates.
You are absolutely wrong. It is a very common analysis.
The cash is worth exactly its face value. When you are trying to figure out what the company is worth, any comparison must take into account the cash.
Let's say Apple only had $1 B in cash. Would the share price be the same as it is now? Or if AAPL had $500 B in cash. No effect on share price? Obviously, it would.
First of all, no it is not a common analysis. Getting a mention here or there occasionally is not a common analysis. And no, it would not make any difference to the share price because the cash does not benefit stockholders and has no impact on earnings. Cash is not a factor in calculating PE or any other stock metric for a reason, and this is the reason.
The explanation is that you don't know what you're talking about. Dividends are taxed to the recipient as normal income. You're using the capital gains tax rate - and dividends are NOT taxed at capital gains rates.
Qualified dividends. In fact under the current qualified dividends rules some taxpayers pay a rate of 0%. You might want to look this stuff up before you accuse someone else of not knowing what they are talking about.
Can you show me any serious research that links PEG to anything?
I'm not sure what you're hoping it links to? Much like P/E, PEG is just another tool for comparing valuation.
P/E can be useful for comparing like companies. But the example given earlier was trying to the P/E of Apple vs. Amazon. In those cases, PEG is another widely used tool.
You're using the capital gains tax rate - and dividends are NOT taxed at capital gains rates.
Not so fast. We've got another year of tax-advantaged status for dividends.
http://en.wikipedia.org/wiki/Dividend_tax#United_States
Where is Slappy?
I'm not sure what you're hoping it links to?
What do you think?
Much like P/E, PEG is just another tool for comparing valuation.
I am afraid you don't really get it.
The P/E ratio (where 'E' is forward earnings) has a very specific meaning that derives from valuation fundamentals, in turn derived from standard DCF models of firm/equity valuation. The value of an enterprise is its expected future Unlevered Free Cash Flows discounted at its cost of capital. If we assume that earnings are a decent proxy for UFCF - which would roughly be the case if a firm does not have too much debt, and Depreciation equals Capex, and Change in Working Capital is zero - then it says that equity value is the sum of expected future earnings discounted at its cost of equity (call it rE). Under assumptions about average long-run growth in earnings (call it 'g'), it can easily shown that:
P/E = 1/[rE ? g].
In other words, the P/E ratio is a very specific statement about a firm's growth-adjusted discount rate. High P/E ratios are associated, in other words, with high expected earnings long-run growth rates, and low (more precisely, lower-than-expected) cost of equity.
Care to tell me what the 'PEG' means, in similar terms?
P/E can be useful for comparing like companies. But the example given earlier was trying to the P/E of Apple vs. Amazon. In those cases, PEG is another widely used tool.
P/E has nothing necessarily to do with 'like' companies. It can be used to compare the earnings potential, relative to growth potential, of any company/asset relative to any other company/asset.
To say that 'PEG is a widely-used tool' to justify it is like saying 'astrological forecasts are widely read' so the pattern of constellations must affect our lives.
In any case you are being far too pedantic in your objection to PEG. It is a commonly used measure of stock performance.