Apple share price discussion
A crash looms for Apple shares... or so the mug punters would have us believe.
The front page article Apple overtakes Microsoft as most valuable company ever caused the expected flurry of silly posts proclaiming their impending doom, "what goes up must come down" and other inanities.
Leaving aside the regular Apple hate and bashing, here's what's wrong with that picture. Apple's share price is fundamentally supported by their high earnings. Let's have a look at that share price:
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Apple's earnings have grown at such a rate that their current price is just 15 times their last four quarters earnings combined. That's where you'd expect to see a company with limited earnings growth prospects in the current low-inflation economic environment.
The comparisons to MSFT's high market capitalisation of $618 billion and its subsequent decline are similarly idiotic. In 1998 and 1999, Microsoft traded at price highs of over 70x annual earnings, a ratio supported by an industry-wide price bubble. For comparison, if Apple were currently priced at 70x earnings, each of their shares would be worth a staggering (and ridiculous) $2,978.50. There is simply no comparison to be drawn between the two.
Going forward, if Apple are merely able to sustain their current level of earnings, today's price is reasonable, though not nearly as good as last December, or even last month. However, if they are able to grow their earnings, they are currently cheap, even if this growth is way slower than the 66% average annual earnings growth they've managed over the last 5 years.
I'm betting on the latter. There's room to grow even in current mature markets, massive head-room in developing markets, and I'm willing to bet there are a bunch of incredible future products in development.
Full Disclaimer: I am an AAPL shareholder and fanboy. I am not a licensed financial advisor. If anybody acts upon the above speculation without undertaking their own analysis of price, outlook and their personal financial situation, they deserve to lose a lot of money.