AAPL price drops below 20x earnings

Historic Apple stock price vs. earnings (in green), and 20x earnings (in red) and 30x earnings (in purple). Earnings are restated according to current financial reports from the company.

  • Lee Penick

    Why do you feel the valuation has changed this much?

    • Most of the world is still in denial about the change that Apple has brought. The value (and hence the perception of future profitability) has simply not sunk in.

  • Lee Penick

    But doesn't your chart show investors use to value Apple higher?
    And now that Apple is more successful, they are being valued less? i.e. willing to pay less for a dollar of earnings.

    Is there something less believable about the iPhone and iPad growth story than there was about the iPod growth story?

    For instance, Apple enjoys great gross margins. But what's the chance they they will deteriorate in a material way as other companies produce similar knock-off products. Let's say Android doesn't effect the iPhones market share or growth, but will it effect it's GM?

    Do you happen to know the history of the iPod GM and what it did over time?

    Finally, I wonder if the perception of systematic risk in the market may be holding down valuation. Recent history shows that smart people at Goldman can sell less smart people at AIG time bomb deriviatives and convert subprime junk into AAA paper that can nuke the system. No fault of Apple that Goldman can dupe the rating agencies, but we all have a cloud over our head until the regulators get this under control. Is this perception of risk effecting the P/E of other similar companies?

    • When Apple was storming the consumer electronics business with iPad in 2005 or so, it was a simple thing to understand. Today, Apple is taking on mobile phones with a thing that is half a phone and half a computer and creating a new market around the iPad which is just a big iPod. It is hard to understand at a micro level, and much harder to understand at a macro level. Who's to say that these new products are not just fads? Let's not forget too that the iPod was considered a fad for the first few years of its existence. None of the analysts today are willing to say that the iPad will change anything. The forecasts for the product were and remain puny. Same with the iPhone. Growth for the iPhone is chronically projected at 30% (lower than the smartphone market itself will grow and one half to one third of what it actually achieves).

      Long term impact from the iPhone and the iPad is not the subject of polite conversation. Discussion of what will really happen will mark you as a nut case, or even worse, a fanboy.