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Apple and comparables P/E ratios: Is punishment for growth being dispensed equally?

Apple’s valuation has been discussed several times on Asymco. Apple’s relative valuation in terms of P/E ratio has not improved since the recession despite an acceleration in financial performance. As Apple seems to be getting punished for growth, we have to also ask if it is the only one.

When looking at valuation from an institutional investor or financial analyst point of view, the most common methodologies are discounted cash flow (DCF) as well as comparable company multiples. Most often, a DCF valuation is performed and cross-checked with comparable multiples. The justification for using comparable companies is the exposure to the same market dynamics including, for instance, market growth and profitability. So to understand this perspective, let us focus on a peer group valuation by looking at the average P/E multiples[1] for the calendar quarters 1/2005 to 1/2008[2].

 

 

 

 

 

 

 

 

 

 

We can see that before the financial crisis Apple has been valued above the peer group average with a P/E ratio of 33.9x.

During the financial crisis stock prices declined across industries. For the selected companies share prices declined on average more than 80%. One would assume that with the improved industry outlook and worldwide recovery since 2009, peer group multiples should return to pre-crisis levels. By looking at the average P/E multiples for the calendar quarters 1/2009 to 1/2011, we can derive the change in relative valuation levels.

 

 

 

 

 

 

 

 

 

 

The data shows that, on average, all companies are continuously trading almost 40% lower for a two year period after the financial crisis. Despite Apple’s higher-than-average discount of 47% to pre-crisis valuation level, Apple is valued above the peer group average and on top of the mobile phone and PC vendor group.

By using the comparable company valuation approach, we are able to see how institutional investors analyze and value Apple. The analysis points to a valuation paradigm shift affecting not only Apple, but many comparable companies post financial crisis. In addition, there was a premium on Apple’s valuation before crisis and there is a premium after the crisis.

The notion that Apple has been single-handedly punished by the market does not hold in the context of comparable companies.

The next step will be to determine if the P/E premium for Apple is consistent with its growth premium.

Notes:

  1. Share prices as of end of quarter, earnings include last twelve months
  2. Charts excluding negative multiples and outliers (turn-around multiples)

 

  • elvis

    which E? last year? next year. that’s kind of important

    • disc1979

      Current multiples are based on last twelve months (See also note 1).

  • WaltFrench

    “…there was a premium on Apple’s valuation before crisis and there is a premium after the crisis.”

    Dirk, thanks for this heresy; it's very insightful. Always helpful to put things into context.

  • EWPellegrino

    What stuns me is how high Amazon's P/E ratio remains.

  • Eric D.

    Great post, Dirk.

    Would it be possible to include Amazon in your analysis? It's seems to be the poster child over over-valued stock. I'd be curious to see if it also suffered from the recession.

    • nikolaihoffn

      AMZ is not a comparable company

      • Roger

        Is Google really a comparable company? Methinks not.

      • EWPellegrino

        No single company is comparable to Apple, in fact none of the top tech firms are really comparable to any others. Apple is a hardware business combined with a software business and an incredibly successful retailer, Amazon is a retailer that is also a technology firm, Google is a software firm that is also an advertising firm.

      • disc1979

        Finding the right peers is as a challenge as finding the line to exclude companies.

      • EWPellegrino

        Yup, there are no clear lines sadly. Amazon though is particularly interesting because they overlap so much on retail. Music sales, video sales and now book sales – they compete head on. Electronics sales they compete also, though to a more limited degree.

        Put side by side, Apple's retail business has around one fourth the revenues of Amazon and four times the profits. Revenue growth YoY for the last quarter was comparable, but Apple's profits grew far faster (considering just their retail numbers).

        Any attempt to calculate a fair value for apple almost has to value the different businesses separately, and the only viable comparison for Apple's retail business is surely Amazon?

      • WaltFrench

        “Put side by side, Apple's retail business has around one fourth the revenues of Amazon and four times the profits.”

        But of course, AMZN is not close to being as vertically integrated as Apple. If Apple treated its Retail as an independent company, you'd get a more comparable set of figures, and the share of profits attributable to retail would be seen to be much, much less than that 4X.

      • EWPellegrino

        I've seen no indication that Apple is selling to it's own retail operations at below their regular wholesale price. If they were doing so it would result in a massive tax liability from the IRS due to issues of transfer pricing (see for example what happened to Glaxo)

        Apple's retail operations are successful because they have an industry leading $5k/sq ft average, not because of preferential prices.

      • Joe_Winfield_IL

        And because they don't sell $0.15 plumbing fixtures with free shipping. It's amazing to me what Amazon will do to be the cheapest option.

  • http://www.applefanboy.com AppleFanboy

    Whoa there buddy. Let’s not draw any conclusions or make a single conclusion about how anyone is valuing Apple off of this very myopic view of Apple’s valuation. Almost everyone of the companies that made this list are exhibiting declining business prospects over this time frame or are being supported by very precarious products in their overall spaces. I know you are going to tackle more metrics, but this data sonfar says little about how Apple has been ignored as a growth company. By the way, a better comparison would be companies with similar fundamentals and growth rates over the last decade. Oh wait there are none. Well here are a few that at least have growth. Priceline, Chipotle, Amazon, Google, Lululemon. Start with these and see how well Apple stands out. ;) Who cares about Dell, Acer, RIM, Nokia, HP etc. These are businesses facing or in declining businesses.

    • Hamranhansenhansen

      Comparing Apple to the businesses that they are obsoleting and have taken almost all the profits from should yield Apple at the top — way, way, way overvalued compared to the others. They not only have shown lots of growth and growth potential, but they have done it very high profile, pop culture, mainstream, changing industries.

      I still think Apple stock is being punished because investors fear either Apple-sans-Jobs or they fear the ever-present cloners or a mix of both. Jobs moving to Chairman will help with the first over time. When there are only 20% of the cloners we have now (2013?) then that will help with the second.

      If you know the technology, you see Apple is years ahead. I started recommending Apple stock in 1998 when a friend explained what Mac OS X was going to be, because it was obvious to me that it was needed and nobody else was building it or even had the components. I don't think investors understand yet how far ahead Apple is in software or manufacturing or retail … easily 10 years ahead of everyone else, and closer to 20 years in software. They have a huge advantage, they are going to grow and grow.

      Just one example is Apple could lock up the entire supply of 4KTV screens with a $10 billion investment that nobody else can match, put the screens in 1-piece aluminum enclosures that they build more cheaply then others make plastic, reduce costs further by building only 1 or 2 ideal sizes that they determine through design skills nobody else has, drop in a cheap little iOS computer that nobody else has, deliver 4K content through the iTunes distribution network that nobody else has, include 2K versions for iPad 3 (2K screen) that nobody else makes, sell the Apple TV's for only a small premium over HDTV's, and totally own the post-HDTV market. The move from HDTV to 4KTV could be essentially a move from HDTV to Apple TV's, just like CD to MP4 was really CD to iTunes+iPod. Non-Apple 4KTV's would be specialty devices, like a really large or small or waterproof screen. That is there for Apple's taking.

      What is Acer even doing near Apple in any metric? Acer is out-of-business any moment now. Apple ate their lunch and they are already starving.

      • EWPellegrino

        20 years ahead in software? No. Os-X is very nice, iOS is very nice and Objective C is an interesting language but 20 years ahead of everything else they aren't. In fact John Siracusa argues quite convincingly that one of the reasons why Apple has been so successful in mobile is because their technology stack is in many ways behind the times – lower level – and thus more efficient in terms of memory use and processor use. Apple's products have extremely well designed software and extremely well integrated software, but they do not have especially advanced software.

        I rather doubt that they're a decade ahead in manufacturing either, retail perhaps.

      • addicted44

        I agree…the number of years are way too optimistic.

        However, I think the essential point is still correct. Apple is ahead in almost every segment of the entire design->support chain, with values ranging from several months, to several years (hard to quantify the actual numbers though).

        1) Design –> Ahead by at least a year
        2) Manufacturing –> Ahead by a "few months". Their manufacturing advantages lie in locking up components (and it seems they have locked up iPad displays, and flash memory pretty well). They also have a several year advantage in the notebook space, with their unibody design.
        3) Logistics –> Again, pretty far ahead of their competitors. Few can match their logistics, although, the nature of their releases put them at a disadvantage (HUGE upfront demand, meaning they are supply constrained for months after any release).
        4) Retail/Support –> I would say they have a decade's advantage here. The Apple retail stores have been around since the early 2000's, and no one looks like matching them in the near future
        5) Hardware –> I don't think they have a significant advantage here (outside of the design, and manufacturing advantages already mentioned). They have an advantage with their A line of processors, but I don't think its all that significant (except for the vertical integration aspect).
        6) Software –> Mac OS X: I don't think this is a significant advantage, since desktop OS'es have pretty much plateaud. However, its a solid underpinning for whatever direction they may want to go.
        iOS: They are probably a few months ahead, at best, IMO. Android is catching up pretty quickly. However, Android has huge patent issues which might change this landscape completely.
        iCloud: This is the wildcard. We need to see how well it is executed, and how well it is adopted before determining how much of an advantage this is.

        But basically, the point is still true, that Apple is ahead in nearly every aspect, and has the additional advantage of vertical integration.

      • Secular_Investor

        You've left out Apple's greatest advantage and the one perhaps most difficult for the competition to catch up, namely Apple's eco-system – iTunes and Appstore and their massive content advantage – and the smooth way hardware and software is so well integrated and "just work" across all their devices!

        The nearest competitor is Android but their ecosystem which has much less on offer and is hopelessly fragmented and all too often "just does not work". Having extolled their so-called "open" system (based ion what appears to be stolen IP) Google are now copying Apple into a more integrated hardware/software offering by buying Motorola, but it will take them years to reach Apple's level of integration (if ever bearing in mind the massive patent problems their are now facing).

        All user satisfaction surveys I have seen show Apple way ahead of Android. This is likely to continue for the foreseeable future unless Android can get their hardware and software to integrate as smoothly as Apple.

      • Chandra Coomaraswamy

        20 years is unrealistic.
        In 10 years even Apple could face a few disruptions of its stool. While I think it unlikely, it's not impossible by any means. How many disruptive innovations are possible in just the next 5 years given the crazy acceleration in the arrival of new technologies?
        The idea of 4KTV is a good one. It would be one of very few ways to enter the TV market, immediately seize the high ground and easily justify a whacking great premium.
        Another huge market that Apple has never touched is mobile entertainment, navigation and connectivity in the car. There is great scope for premium products there too, including fully exploiting the rich potential capabilities of a connected on-board computer.

  • joe Zou

    in my opinion, a more relevant metric is the enterprise value to earning. Enterprice value=equity market cap+debt-cash. if you take out the cash, how does your analysis change?

    • disc1979

      Enterprise value multiples are certainly a better way to look at value. I tested also EV/EBITDA and EV/EBIT multiples. The conclusion of the article extends also to those multiples.

      • JonathanU

        Would love to see that data – EV/EBITDA is certainly much more prefereable to P/E ratios given it's pretty easy to fudge EPS…

  • addicted44

    This is a good analysis, but the problem is the comparables do not pass the smell test. Nearly every comparable's growth prospects are severely damaged (and ironically many of their prospects are damaged because of Apple).

    Also, this analysis needs to be repeated ex-cash.

  • Prazan

    My takeaway from this is that P/E ratios are reverting toward a group mean, rather than the individual mean for each company, to some extent regardless of competitive strengths and growth rates. Because Apple's P/E laid furthest from the mean (except for Google) in 2005/2008, it had the furthest to fall. In 2005/2008 Apple's P/E was 37.8% above the average and 67.8% above the median, compared to just 18.4% above the average and 25.8% above the median in 2009/2011. This is a fall of more than 50% against the mean. The market has punished all stocks in the general sector, but Apple more than others if only because Apple had greater room to fall. To my eye, this signals potential value, particularly given Apple's growth rates, when the market learns again to differentiate companies grouped (fairly or not) in the same sector.

    • disc1979

      A good observation and food for more analysis.

  • r.d

    I think it is waste of time trying to analyze PE and the Stock Market.

    Apple is fortune 100 company.
    35 years old.
    Stock Market only gives high PE to small companies.
    Google will go down too if their growth slows or they don't make any money in mobile by next year.
    If only buyers are institutions then why should they keeping bidding the price up.
    May be if Apple paid a dividend and was on the Dow then more people would buy it.
    As it is hedge fund and Options Market is manipulating the Apple Stock to make money going
    up and dow, so PE doesn't matter to them.

    Another way to look at it. Exxon represents the ingredient needed to power the economic system.
    Apple cannot be compared to it ever because without oil, there is no civilization as you know it.

    • joe zou

      without communication, there is no future of civilization. there are more cell phones in the world than cars that need oil. it is entirely rational that aapl can be more valuable than XOM.

    • EWPellegrino

      First off Exxon is not the most important oil firm in the world, not even close. The FT valued Saudi Aramco at 7 trillion dollars, so there's a long way before Apple exceeds that.

      As for AAPL being manipulated by nefarious hedge funds, I'm sorry but that's tin foil hat territory.

    • Horace Dediu

      The market gave Apple a P/E above 35 three years ago. It wasn't that small.

      • Roger

        rather than market attitude, wasn't the high P/E due more to low E resulting from subscription accounting on iPhones?

      • jonshf

        That's right. At some point a couple of years ago (2009?) Apple switched from non-gaap to gaap accounting methods. The result was a sharp increase in earnings because iPhone revenues came more quickly into the books that were previously deferred.
        Unless accounted for, this could have some skewing effect on the charts as the pre-crisis earnings are in effect lower than they should have been.

      • Horace Dediu

        My figures are based on restated earnings. http://www.asymco.com/2011/01/24/wall-streets-inf

        The company peaked at 50 in late 2007.

    • Hamranhansenhansen

      But we have already passed peak oil. Over the past 20 years we use less and less of it every year. Similarly, about 100 years ago we passed peak wood and never looked back. Today, we have certainly not reached peak computing. It is expanding dramatically. In a couple of years, the total number of iOS and MS-DOS devices sold will be the same. That includes all Windows versions before 2000. That's iOS selling more devices in 6-7 years than MS-DOS sold over its 20 plus year life.

      And it is computation that without which there is no civilization as we know it. Twenty years from now we might have fusion power and oil-free manufacturing, but we will certainly have computers. We have made ourselves much more dependent on computation than on oil. Without computers, we would already have run out of oil. We can't even find or drill enough oil for everyday use without using computers.

      So Apple's growth potential is much, much larger than Exxon. What we are seeing in the stock market as Apple and Exxon change places is the 20th century changing to 21st, fundamental oil changing to fundamental computing.

      • jonshf

        I've never looked at it this way but there is a ring of truth to it. Still, energy use will continue to rise and the price of a barrel of oil will go up unless an alternate source emerges in a competitive way. It's not happening soon. I wonder when an alternate energy company will eclipse Exxon.

      • Ian Ollmann

        Raise oil prices enough and competitive technologies WILL emerge.

      • Horace Dediu

        Oil is so cheap that any investment in alternative energy has been disastrous so far. If one looks back at why and how oil took off as an alternative fuel to coal it was not because it was cheaper.

      • JonathanU

        Not sure I agree with you when you say we use less and less of oil with every year that passes? That might be the case in the US and Western Europe, but China and emerging economies are using vastly increasing amounts of oil…

        Food for thought, if China uses the same amount of oil per capita as does Mexico (let alone the US) they're consumption of oil will quadruple from current rates. That's a frightening amount of oil needed…

        We are certainly not over our need for oil, and doubtful we will for a long time to come. Similarly, our economies are so linked to the price of oil that when it increases in price (as it has done in the past 12 months), Western economies slow/stall. So this talk of just raising the price of oil and renewables will step in to compete just doesn't ring true with me. Oil greases the wheels of the global economy. The cheaper and more plentiful it is, the better off the world is.

    • addicted44

      The problem with this analysis is that XOM hardly provides any differentiation from its competitors except for ownership (or licences? not sure about the oil market dynamics) of oil fields. If XOM was to drop off the face of the earth, any number of companies (BP, Shell, Aramco) would step in to drill oil where XOM used to.

      Apple, OTOH, is rather unique. If Apple was to drop off the face of the earth, a replacement is hard to see. Apple is the only company that is managing to extract significant value (defined by profits, because that is what eventually matters) from several industries (PC, cell phones, tablets).

      • Joe_Winfield_IL

        Great point. Also, there's never been an iPhone spill or nationalization of Foxconn assets by a rogue dictator. Macbook prices aren't determined by a vague notion of supply/demand on a series of global commodity exchanges. Apple isn't limited by Western governments to a certain share of the iPad market.

  • Nalini Kumar Muppala

    please note typo in referencing notes [2], [3] vs [1], [2]

    • Horace Dediu

      Thanks. This has been fixed.

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  • Davel

    I won't quibble with the companies chosen but do have a question. It is interesting to see the relative values of the companies selected. I will agree that this is a decent cross section of companies generally considered peers as they are mobile or computer companies.

    However as mentioned by others there are significant differences in the companies.

    I assume the street looks at similar populations. Do you feel the relative valuation is a justification for the value associated with Apple stock or perhaps other reasons like Jobs's health, cash, no dividend, too big, can't grow, etc?

    • Dirk Schmidt

      The Street looks at these or similar populations. The justification of Apple's relative valuation needs more analysis. For now we can establish that there has been a devaluation for all peers. Especially one of your reason will be examined further: growth.

      • MOD

        AAPL return on stock (per share) investment.

        ttm(trailing 12 mos),2010, 2009, 2008,2007,2006,2005,2004,2003

        Diluted Earnings per Share: $25.28 $15.15 $9.08, $6.78,$3.93,$2.27,$1.55,$0.35,$0.10

        (Market) share price: $383, $292, $182, $131, $153, $75, $53, $18.7, $10.2

        Return on investment: 6.6%, 5.2%, 5.0%, 5.2%, 2.6%, 3.0%, 2.9%,1.87% , 0.98%
        (computes as: EPS/share price)

        P/Es: 15.7, 19.9, 14.3, 36.3, 32.1, 33.0, 47.1, 72.7

        One can see a clear trend. The stock has not been a good investment earlier in the decade, but is a good one now. It also shows that career (Wall St.) analysts who follow stocks over the decades would not put much faith in Apple, since it is a newcomer at profitability.

        Yes, there was a blip during the financial crisis/recession, but that does not explain the trend.

      • EWPellegrino

        Your analysis here is kinda begging the question because the way you are computing ROI is as effectively the inverse of P/E.

      • MOD

        P/E ratio is a combination of two numbers: 1) earnings and 2)market price of common shares.

        Separated out it shows that Apple was not always a high earner. It is earning now over 100 times as much as it was earning 10 years ago. Not too many companies can say that.

        Second, it is important to understand what a P/E means. What does a P/E of 15 really mean? PE of 35? PE of 45? Analysts throw these numbers without understanding much. Can they be compared sector to sector or in between time periods?

        Yes:
        1/15 = 6.7% return.
        1/35 = 2.9% return,
        1/45 = 2.2% return.
        If one were to invest in a dividend paying stock, 1/15 is very good, 1/35 so-so.

      • davel

        Thanks. I think if you look at growth, Apple is severely undervalued.

  • c.c.

    why is it that Amazon is not even mentioned in your analysis?

    • Horace Dediu

      You need to give a reason why Amazon should be mentioned as a comparable.

  • c.c.

    it's really jaw dropping to see there's anobody who wants to put Apple in the group of bunch of losers and calculate 'median' out of it and try to draw a quick conclusion. Wow.

    • Horace Dediu

      You need to provide a list of winners as an alternative list to compare to.

    • JonathanU

      Agree with Horace – these look like a pretty decent set of comps to me.

      Come up with a better set and I'm sure they'd be happy to run the numbers…

  • addicted44

    What I am drawing from these numbers is that Apple is extracting a premium at current earnings. However, this premium is not reflective of their historical growth, especially the past few years. IOW, the street expects their past growth to be an anomaly, and is expecting growth to drop off sharply from current levels.

  • Nalini Kumar Muppala

    "The accepted idea that a common stock should sell at a certain ratio to its current earnings must be considered more the result of practical necessity than of logic." – Benjamin Graham, in "The interpretation of financial statements"

    Seems to be just as true as when it was written decades ago. How would the author and the audience interpret this statement in this day and age?

  • Joe_Winfield_IL

    Dirk, welcome aboard! If your first post is a sign of things to come, I look forward to more contrarian analysis. I hope you will focus energy on less publicly available metrics (i.e. not listed on Yahoo!, Fidelity, etc.) such as DCF. This type of analysis will help to further differentiate Asymco from the white noise of the blogosphere. That being said, I was a bit disappointed to see the whole article focus on P/E. It's a useful metric that everyone knows, but P/E comparisons are tough in industries with such rapid change among incumbents. I feel like adding growth (PEG) helps add a bit of perspective vs. standalone P/E. Still, I hope to see you bring out DCF-type measures into a public forum instead of locked up behind a brokerage pay-wall.

    • JonathanU

      Couldn't agree more – do a reasonable, conservative DCF and you'll be blown away by the stock price that it spits out. Post that on this forum and you'll certainly turn a few heads…

      • EWPellegrino

        Actually technically DCF gives a value of 0, because Apple stock doesn't pay a dividend, so there are no cashflows to discount.

      • JonathanU

        Incorrect – a company does not need to pay dividends for one to do a DCF.

        A DCF is just the summation of all future free cash flows (FCF, not dividends) discounted back to present value (to take into account the time value of money).

      • EWPellegrino

        Properly it is the sum of dividends because FCF does not reflect exactly returns to the investor or even potential returns to the investor (due to taxation issues).

        One can substitute FCF but the resulting model has all of the disadvantages of DCF (potential for infinite valuations etc) without the theoretical rigor.

  • Insert Name Here

    Samsung is the only company comparable to Apple.

    • EWPellegrino

      Samsung isn't remotely comparable to Apple. Samsung is a chaebol employing 280,000 people and with revenues of 200 billion. Actually it's probably more than that but we don't really know because there are so many partially owned subsidiaries involved.

      Samsung is controlled by the founding family via special voting stock and has a history of treating minority shareholders poorly.

      Samsung can be compared to LG or Hyundai, but not to Apple.

      • Insert Name Here

        Samsung is a vertical integrator that has systematically aimed for the high end of the markets they compete in. The stole Sony's market segment, and they are clearly aiming at Apple's as well. They leverage their stake in CPU and memory foundries, chipset assembly, materials manufacturing and assembly, increasing experience in software and a wide consumer-facing distribution network to compete relatively well in high-end devices. Though there are obviously many huge differences between the companies, they are likely to be the most significant competitors to each-other going forward, moreso than any other rival Apple has. Apple can't buy Samsung out of their own supplies.

      • Insert Name Here

        Of course, that being said, the issues you raise do make a comparison difficult. It's simply that Samsung seems like the only one positioned to compete with Apple on price while maintaining margins.

      • EWPellegrino

        Even if we were talking just about Samsung Electronics, and even if we didn't have the problem that it was majority owned by Samsung and had only a very limited free float, there would still be the issue that the businesses are very unalike.

        Apple isn't a vertical integrator in the same way, it's a systems integrator. Apple doesn't create components for the wholesale market, but the majority of Samsung Electronics' business and profits are from just that.

        Apple isn't highly capital intensive, Samsung operates in some of the most capitally intensive businesses around.

        Samsung Electronics' consumer products may be superficially similar to Apple products, (Apple would say legally actionably similar), but the businesses are worlds apart.

    • Horace Dediu

      Competing does not mean comparable. Apple mostly creates software which it monetizes through hardware. Samsung mostly creates hardware which it monetizes through hardware.

      • Insert Name Here

        Maybe a better way to say it would be comparable in ambition and potential to disrupt each-others' plans and profitability. Their strengths have traditionally lied in occupying different layers of the supply chain, but it seems that both companies have set their eyes on each-others' profits. With Apple extending their expertise down into chip and chipset design and contracting/partnership in order to maximize their profit margins, and Samsung extending their expertise and investment in software in order to maximize their hardware supply profits and ensure steady demand for their own components, the companies are now set to collide in a spectacular fashion.

        Both Apple and Samsung have some serious resources and momentum behind them, and they have only begun to trade some paint. I've got my popcorn ready, and I'll disclose for the record that I have placed my bets on AAPL and not Samsung, at least not yet. Should they eventually show signs of competence in software design, though, I may have to hedge.

  • Sacto Joe

    What everyone seems to have lost sight of is one indisputable fact: In the last year and a half, Apple's P/E has dropped 30%. Why? If you don't understand why, then you won't understand why it could very well drop another 30% in the next year. Yes, a P/E of 10 within a year. And the same a year after that. And so on.

    Look, Apple is entering the realm of the unknown in terms of earnings growth. And that's scaring the peanuts out of a lot of people! Has anyone stopped to ask what happens if Apple starts doubling its earnings every year? Has anyone thought what that means must happen to the P/E ratio, what we already see happening to the P/E ratio?

    And has anyone considered that a shrinking P/E ratio is by its very nature a devaluation of a company's true worth, and that such a devaluation in Apple's case is horribly unfair to its stockholders?

    • EWPellegrino

      It isn't horribly unfair to stockholders, that's a ridiculous statement. There's no fair or unfair in the market, just people choosing to buy or people choosing to sell.

      If it's undervalued then you should buy, if you choose not to buy then ask yourself why you do not and those are some of the reasons why the stock price remains lower than you believe it should be.

      • Sacto Joe

        Of course it's unfair if something is undervalued, especially if you're on a fixed income and have to sell. Apple historically averaged a P/E of 30 in the first decade of this century. It's half of that now, and it's going lower.

      • JonathanU

        Fair? What is this, a primary school playground? Life's not 'fair'…

        Apple is only undervalued from your own perspective. From the market's perspective, Apple is completely fairly valued.

      • Sacto Joe

        Yes, and everything's relative, right? No, it's not. Apple has dropped 30% in value in the last year and a half as valued by its P/E ratio, at the same time its earnings have exploded. That's not a fair valuation.

        And yes, if a stockholder can afford to wait then eventually Apple will move back to fair valuation. But we are still in the grjps of the worst recession since the end of World War Ii. People are being forced to divest who would not otherwise do so, people on fixed incomes or people who have taken a hit in income. They can't afford to wait until valuation becomes fair again.

        Frankly, a lot of stocks are undervalued right now, and perhaps that's the point of this article (althogh it isn't clearly stated). But Apple is not just undervalued- it's horribly undervalued. And that's unfair to those who are forced by circumstance to sell the stock right now.

        And the sad truth is that this undervaluing is almost certainly purposeful, as it permits very large players to load up at fire sale prices on a stock that they know will eventually regain its true value.

        There's a name for these kind of people; they're called "cargetbaggers".

      • EWPellegrino

        So, shadowy figures are conspiring to keep Apple's shareprice low, and Apple with their $75BN cash pile is powerless to stop them!.

        I'm sorry but your beliefs here are prima facie bonkers. If Apple is so grotesquely undervalued why hasn't Steve borrowed against his Disney stock to buy more? Why hasn't he arranged a share buyback?