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Quarterly Earnings Multiples: The new normal?

Based on the new iOS units numbers released I revised at the numbers for next quarter and it’s very probable that EPS will be over $5.25.

As recently as 2007 Apple was priced 50x one year’s earnings.

Now it’s priced 47x one quarter’s earnings.

Should we consider applying old yearly earnings multiples to quarterly earnings as the new valuation normal?

  • rd

    Law of big number prevents Apple to go previous valuations.
    Unless the fed creates couple of bubbles, this is the
    best it can get.
    Unless the economy is booming, Stock Market cannot
    price Apple any higher. especially when people have lost
    confidence in the Banks and Wall Street.
    So looking at past to predict the future is like looking
    at Star clusters 100 million light years to predict how
    you day is going to be.

    • http://www.asymco.com asymco

      So are you suggesting that if Apple made $10 per share per quarter then it still could not be priced above $250? What if Apple had $100/share in cash?

      When you talk of law of large numbers, what is your definition of "large".

  • http://appleincanalysis.blogspot.com/ Lee Penick

    Perhaps Apple should split itself into multiple companies to avoid the law of large numbers:

    Apple #1: iPods (w/o iPod Touch) – low growth

    Apple #2: iPod Touch – high growth

    Apple #3: iPhone – high growth

    Apple #4: Apple TV – hobby growth with interesting potential

    Apple #5: iAds – high growth, (started at 0)

    Apple#6: Macs – high growth

    Apple #7: MacBooks – high growth

    Apple #8: iPad – high growth

    Then, when they are selling for an average p/e greater than today's Apple, they can claim there would be tremendous efficiencies by combining into one company…and the p/e would go up again! (Despite having paid millions in banking fees to Goldman or others)

    Alas, I jest. The patient investor will be rewarded as inefficiencies in the market are worked out over time. When corn is on sale, buy corn. (Oranges, etc.)

    The mobile internet is big, there are many areas for Apple to excel in yet untapped. Apple innovates, others regurgitate.

    Imagine what Christmas sales will be like this year with the product refreshes they announced today.

    iPod Touch, the ultimate stocking stuffer.

  • http://www.asymco.com asymco

    P/E is not some arbitrary number or rule of thumb. It's the number of years to recover the purchase price of a share through earnings. If the P/E is 10 and if earnings are not growing, then it takes 10 years to recover the investment and any earnings after 10 years is "profit" for the investor. However, if earnings are growing, the payback period is much shorter. This is why P/E should reflect growth rates. A company like Apple growing at 80% should be valued with a higher P/E than one that's growing at 10%. The market today is doing the opposite.

    • http://appleincanalysis.blogspot.com/ Lee Penick

      My point is I'm poking fun at the "market".
      If the "law of large numbers" has them worried, multiple companies can get over that issue Then we have small companies growing fast! Once again the market would be happy to grant a high p/e multiple. (silly because 2+2 still equals 4)

      Then we could say, no it's more efficient to have one large company since it would only need one payroll dept. etc. Then the market should be even happier as they combine for greater efficiency. (silly again)

      Instead, obviously the market in general is discounting Apples future growth potential different than you and I. They don't believe it will be as high or last as long as we do. So they value Apple lower. Since all investors can easily see Apples current growth rate, I suspect it's the duration of the high growth that investors are perceiving differently.

      I believe we both think the market will be proven wrong over time. It's an inefficiency in the market, or inefficiency in it's forecasting ability.