Apple has risen from ~ 350 at start of this year to 600, before falling to the currnet 585 level. Its market capitalization is 545 billion dollars. It comrises about 4% of the S&P 500 index. It is now a must own for most stock mutual funds. Some funds, which are not supposed to own stocks, or not supposed to own technology stocks also own it, since everyone else does.
Since ~ 1998, the following companies have had the largest market cap
GE (down from 55 to ~ 20)
Microsoft - down from ~ 50 to current 32
Cisco - down from 80 to current 20
Intel - down from ~ 40 to current 27
Exxon - down from ~ 90 to current 85]
No dividends have been considered above - thoug tech hardly paid any dividends till recently.
Other than Exxon, all the stocks in the last 14 years which have occupied the largest market cap crown ever so briefly have tumbled. Is Apple the next Tech goliath slated for a fall? Or is this time different? That is this is not longer the go-go 2000 Tech bubble type scenario?
Full discolsure - as stated earlier in other threads, I own a y-pad, and not an i-pad - so am not technically very savvy.
overvalued? p/e is still attractive, but superstar tech stocks go weird. why is msft still so damn cheap when you look at its p/e? :s
one way of playing the smart phones/portable do it all market is to go after the non-visible non-superstar companies that go into them anyway. armh anyone?
^ While comparing Apple’s P/E ratio leaves us with the conclusion that its stock is undervalued, another important metric brings this result into question. If we compare the free cash flow to the enterprise value, we see that perhaps AAPL is overvalued. The enterprise value of Apple has been on a steady incline for the past two years, showing no signs of slowing down. Its free cash flow on the other hand has remained relatively constant in comparison. The result is an ever growing EV/FCF metric, which signals an over valuation - and which I consider more valid because it measures cash flow instead of net income (which can fluctuate with the use of different accounting measures).
overvalued? p/e is still attractive, but superstar tech stocks go weird. why is msft still so damn cheap when you look at its p/e? :s
one way of playing the smart phones/portable do it all market is to go after the non-visible non-superstar companies that go into them anyway. armh anyone?
P/E I think is about 13. And pundits are project 20% growth for a "few" years, without specifying what is few. In the go-go late 90s, people thought Tech stocks were growth stocks. Now Tech stocks are recognized as cyclical stocks, with destructive competition.
Excellent point re: suppliers. Arm holdings is an great example. I forget what its market cap, P/E, P/S etc is.
^ While comparing Apple’s P/E ratio leaves us with the conclusion that its stock is undervalued, another important metric brings this result into question. If we compare the free cash flow to the enterprise value, we see that perhaps AAPL is overvalued. The enterprise value of Apple has been on a steady incline for the past two years, showing no signs of slowing down. Its free cash flow on the other hand has remained relatively constant in comparison. The result is an ever growing EV/FCF metric, which signals an over valuation - and which I consider more valid because it measures cash flow instead of net income (which can fluctuate with the use of different accounting measures).
Thanks Player. If I recall, enterprise value = market cap + debt-cash. Apple has no debt and 100B cash. So I suspect if enterprise value has been on an upward slope, the market cap should be on an even greater upward slope. So P/FCF should signal even greater overvaluation.
Thanks for introducing Enterprise value though. For companies with high debt, this can really shed greater light.
Even if you back out the cash, its market cap is 460 billion.
Also, I never understood why companies make a fanfare of buybacks. IMO, a buyback in 2009 when stock was at 75 would have been way smarter. Could they now use their cash in destructive ways such as buybacks? At these prices, dividends is preferable (IMO)
Thanks Player. If I recall, enterprise value = market cap + debt-cash. Apple has no debt and 100B cash. So I suspect if enterprise value has been on an upward slope, the market cap should be on an even greater upward slope. So P/FCF should signal even greater overvaluation.
Thanks for introducing Enterprise value though. For companies with high debt, this can really shed greater light.
Your definition of EV is correct. Since market cap has risen at such a rapid clip, EV has gone through the roof while FCF has not kept pace.
Apple is now at 629, 8% higher than when we started this thread. Its market cap is 588 billion dollars. Now everyone is bullish on the stock. It is a must own stock for most funds. Time will tell.
^ Long-term investors look atthe big picture - to see if the company valuations are reasonable, its balance sheet is sound, its free cash flow is solid, and it has reasonable prospects for the next 5 years at least. Most probably, the long term investors would have been in on the stock before the crowd. If it ivervalued, they will be happy to part with it and sell it to the mob.
Full disclosure - as stated earlier, I have been burnt twice - once in the tech bubble, and once finanical bubble. School of hard knocks is the best venue to learn (as long as one can get back the lost shirt).
To add to above - long term investors dont let the crowd affect their decision making. If a stock is undervalued, he will buy it if he has cash, if it is significantly overvalued, he will get rid of it. In Apple's case, if he missed picking it up in 2009 at 79, woke up and saw the price at the current ~ 640, he will not worry about it. The ship has sailed. Even if it goes to 1200, he will not let it affect him.
Also, the investor should take into account his exposure to Apple through index funds. Apple is now 4% of S&P 500 market cap. It is said you dont want to have more than 4% of your stock holdings in one stock. With that yardstick, the investor would do wel to avoid Apple at these valuations. Now if it were to drop by 70%, that would be another story.
^ While comparing Apple’s P/E ratio leaves us with the conclusion that its stock is undervalued, another important metric brings this result into question. If we compare the free cash flow to the enterprise value, we see that perhaps AAPL is overvalued. The enterprise value of Apple has been on a steady incline for the past two years, showing no signs of slowing down. Its free cash flow on the other hand has remained relatively constant in comparison. The result is an ever growing EV/FCF metric, which signals an over valuation - and which I consider more valid because it measures cash flow instead of net income (which can fluctuate with the use of different accounting measures).
you meant to say market value of equity not EV....for PE multiples, we dont consider EV but just market value of equity
