As I mentioned in a previous thread, I’d like to start a discussion on what the downside could be for AAPL. Not that there are any obvious reasons for a dramatic pull back, but as we know from the Financial Crisis, AAPL (the stock) is not immune to global market/economic conditions (though Apple the company sure seems to be).
So I recently did some quick analysis on how low did AAPL’s PE go during the crisis. And I did it by looking at Apple’s Calendar Year EPSs, not Fiscal Year. 2 reaons for that - first, the stock hit the low point of approximately $78 in January 2009 - so looking at the EPS for the 4 preceding quarters made more sense on a Calendar basis. Second, and this one is a more personal reason, I tend to buy Calls that are out at least a year - Jan 2011s and (more recently) Jan 2012s. So I needed to evaluate EPSs/PEs on a Calendar basis to try and extrapolate what they might be closer to my contract expiration dates.
Finally, I had to go back and find the revised/restated earnings for Calendar 2008 to make sure I was using accurate numbers. Otherwise, you end up with much higher PEs than was actually the case.
Net/Net, turns out that when AAPL hit the low point, the PE was approximately 10.5! Hard to believe, isn’t it? But what it tells me, is that while we might be disppointed that the stock is now trading below a PE of 20, if all hell breaks lose, there is a lot of potential downside.
If someone can validate my numbers, that would be much appreciated. And as always, take this for what it’s worth - do your own analysis/homework before making any trading decisions (as I’m sure you always do) - I’m just another amateur with no established record and/or credentials to give advice.
So, is your question how low AAPL can go in the event that the world economies almost go into another Great Depression or how low can AAPL go with we see growth in the 2-3% range?
Given the recent survey of IT people and the testing and/or adoption of iOS devices in the enterprise, the increased uptake of Macs in the enterprise that we heard of in the conference call, etc., I am not sure. I think we may be near the low for the rest of 2010.
I could be wrong though. If I am it will cost me money.
Net/Net, turns out that when AAPL hit the low point, the PE was approximately 10.5! Hard to believe, isn’t it? But what it tells me, is that while we might be disppointed that the stock is now trading below a PE of 20, if all hell breaks lose, there is a lot of potential downside.
Basically, I agree. In the worst-case scenario, the market could experience multiple PE contraction and go back to an average PE of below 10 as in the late 70’s. However, I’m neutral-to-bullish on the US market, and believe that Apple is the best company in this market (and that, ultimately, AAPL is the best stock). I’m ready for lower prices with 2011 and 2012 LEAPS but a lot of us could get wiped out again if there’s a repeat of 2008.
OK, now I’ll go post to DT’s AAPL@300 thread to make myself feel better
Net/Net, turns out that when AAPL hit the low point, the PE was approximately 10.5! Hard to believe, isn’t it? But what it tells me, is that while we might be disppointed that the stock is now trading below a PE of 20, if all hell breaks lose, there is a lot of potential downside.
Basically, I agree. In the worst-case scenario, the market could experience multiple PE contraction and go back to an average PE of below 10 as in the late 70’s. However, I’m neutral-to-bullish on the US market, and believe that Apple is the best company in this market (and that, ultimately, AAPL is the best stock). I’m ready for lower prices with 2011 and 2012 LEAPS but a lot of us could get wiped out again if there’s a repeat of 2008.
OK, now I’ll go post to DT’s AAPL@300 thread to make myself feel better
That is pretty much how I am positioned in AAPL also - mostly $30-40 ITM LEAPS, a little bit one strike price out of the money.
AHHA, we’ll use your 10.5 p/e multiple as the basement. Apple’s current trailing 12-month earnings is now $13.3. At a p/e of 10.5 the share price would be $139.65. Following the September quarter results we’d be looking at $157.50. By this time next year a 10.5 p/e multiple would put the share price perhaps somewhere around where it is today based on the current rates of earnings growth. Not a bad basement scenario.
Now, look at the upside with a paltry p/e of 20 and just under today’s rates of earnings growth, and we are over $450 per share by this time next year.
I rate the likelihood of reach well over $400 per share far greater than the risk of a market implosion reducing the p/e multiple to 10.5. Figure too, Apple is only accelerating its cash pick-up per quarter. Removing net cash from the equations makes a p/e of 10.5 less likely even in a market implosion due to the quarterly incremental strengthening of the balance sheet.
Balancing potential risk against potential reward, I see AAPL among the best games in town. What’s the alternative? Cash returns nothing perhaps even a negative yield today considering inflation risk.
AHHA, we’ll use your 10.5 p/e multiple as the basement. Apple’s current trailing 12-month earnings is now $13.3. At a p/e of 10.5 the share price would be $139.65. Following the September quarter results we’d be looking at $157.50. By this time next year a 10.5 p/e multiple would put the share price perhaps somewhere around where it is today based on the current rates of earnings growth. Not a bad basement scenario.
DT, I agree with your risk/reward scenarios. There were 2 reasons I was modeling the potential worst case scenario. One was just to know how low the PE was during the crisis and given the current EPS, what is the corresponding low price point. Clearly, there’s nothing on the horizon to suggest such a cataclysmic event in the near term. The other reason was to model out how low could it go given this low PE, but based on potential earnings 6-12-18 months out. The reason for the latter was to find relatively safe ITM Puts to sell for those durations.
I did the same “worst-case” scenario using the 10-11 P/E at the March nadir as well. But if there is any kind of significant retracement, I highly doubt it will sink even half the depths of March 2009. Plus, the current EPS AAPL is producing will put a higher floor in, as DT posted. The fact that Apple has even more cash on hand now than it did a year ago is lost on WS, so I don’t take any comfort in that.
For myself, I’m shifting to ITM calls Jan 2012 when AAPL dips below $250. I’m not buying anymore calls that expire this year. On another thread, there seems to be an opportunity with the weekly pin action on Thursday-Friday, but I wonder if this new development will be short-lived and blow up as there’s no such thing as a sure thing.
AHHA, we’ll use your 10.5 p/e multiple as the basement. Apple’s current trailing 12-month earnings is now $13.3. At a p/e of 10.5 the share price would be $139.65. Following the September quarter results we’d be looking at $157.50. By this time next year a 10.5 p/e multiple would put the share price perhaps somewhere around where it is today based on the current rates of earnings growth. Not a bad basement scenario.
DT, I agree with your risk/reward scenarios. There were 2 reasons I was modeling the potential worst case scenario. One was just to know how low the PE was during the crisis and given the current EPS, what is the corresponding low price point. Clearly, there’s nothing on the horizon to suggest such a cataclysmic event in the near term. The other reason was to model out how low could it go given this low PE, but based on potential earnings 6-12-18 months out. The reason for the latter was to find relatively safe ITM Puts to sell for those durations.
No complaint from me.
It’s always a good exercise to evaluate the downside risk. If AAPL’s p/e fell to 10.5 I’d be scrounging around the couch looking for every bit of spare change to buy more. My concern right now is the upside valuation. I expect AAPL to be trading at or above $300 per share relatively soon, perhaps around the mid-point in the quarter.
Right now, the stock AAPL, has NOTHING TO DO WITH Apple the company. It is a total captive of the socialists in Washington, the bureaucrats of the EU, and the price of pigs in China.
Not to mention, the zombie machines that trade ALL STOCKS up or down in lockstep, and holding shares for over five hours is now a thing of the past for so much of the zany weird wacky casino we call “investing in Wall Street.”
In fact, they should just rename it the STOCK MARKET LOTTO, to make things more transparently honest.
Between the crooks, passing massive laws every hour, the theives regulating nothing, the whores in the media, and the concentration of information into SIX COMPANIES, the very concept of VALUE INVESTING is a raging joke.
What a company does now, virtually counts for NOTHING, what counts is what the crooks, cons and machines do most of all.
{ disclosure: a very very large long position in AAPL, I won’t say how much, last time you guys all ragged on me for doing so. }
Apple’s trailing PE was NOT 10.5 in Jan 2009, because Apple had not restated to non-subs accounting until Jan 2010. Apple’s ttm EPS (calendar 2008) at the time was $5.38. At the lowest price of $78, the trailing PE would be 14.5. I don’t think there were too many analysts, or investors, who were appropriately valuing AAPL using non-GAAP or non-subs accounting measures.
Yes, but Apple has some of the best numbers to play Lotto, so it’s due for the big win.
The Lotto firms count on those suckers, every single day.
Apple is NOT GOING TO BE VALUED by anything other than external issues, completely unrelated to Apple itself for some time to come.
UNLESS, Steve et al, wake up, split the stock five-to-one, letting the average punter into the game, this will serve to insulate the company somewhat from the ravages of the machines, and microsecond traders that now are playing the stock DAILY, pushing it up, down, up down, just to grab a few thousands of a penny each trade that they hold for 10 minutes.
IF they could allow the millions of Apple CUSTOMERS to see that they could reasonably afford a hundred shares of their beloved firm, after a split, it would settle this down a little.
I KNOW this is psychological, BUT look at what happened when Berkie-Hathawaaywway did the huge split, almost overnight, the stock went up 15% plus, ONLY BECAUSE it opened it up to more punters with more modest pockets.
Apple’s trailing PE was NOT 10.5 in Jan 2009, because Apple had not restated to non-subs accounting until Jan 2010. Apple’s ttm EPS (calendar 2008) at the time was $5.38. At the lowest price of $78, the trailing PE would be 14.5. I don’t think there were too many analysts, or investors, who were appropriately valuing AAPL using non-GAAP or non-subs accounting measures.
The forward PE being a better valuation metric than the trailing PE, shouldn’t we look at what that was at the low?
Normally you have to look at estimated earnings for a forward PE. But with the benefit of hindsight we can see that, when AAPL was at $78, the actual earnings a year later were about $10.24 (including restated earnings). So the forward PE back in Jan 2009 was about 7.6. What a bargain that was!
I’m new at this. Is it helpful to look at it this way?
Apple’s trailing PE was NOT 10.5 in Jan 2009, because Apple had not restated to non-subs accounting until Jan 2010. Apple’s ttm EPS (calendar 2008) at the time was $5.38. At the lowest price of $78, the trailing PE would be 14.5. I don’t think there were too many analysts, or investors, who were appropriately valuing AAPL using non-GAAP or non-subs accounting measures.
Putting aside the serendipitous and inexact nature of using P/E ratios to valuation, AAPL’s “how long can it go” would then be $195, or so, on trailing Q3 2010 EPS. But we don’t know the answer to your question on the # of analysts and investors who were recalibrating for non-GAAP #s.
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