A Picture is worth a 1000 words

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    Posted: 29 May 2011 09:53 PM

    Apple looks to be trading at 2/3 of it’s 5 year avg P/E

    http://ycharts.com/companies/AAPL/pe_ratio#zoom=5

         
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    Posted: 30 May 2011 01:17 AM #1

    Nag, I would not put to much faith into that chart, it is not accurate. AAPL traded at a 50 p/e late in 07 and more recently was well over 20.  rolleyes

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    Posted: 30 May 2011 06:23 AM #2

    mbeauch - 30 May 2011 04:17 AM

    Nag, I would not put to much faith into that chart, it is not accurate. AAPL traded at a 50 p/e late in 07 and more recently was well over 20.  rolleyes

    They seem to sample once a quarter. I used to track this data daily but now I do it weekly. A better metric would be to compare P/E ex cash divided by trailing growth. That figure is now nearly at the same level as during the recession of 2009 (0.2). Which is to say the lowest in a decade.

    The market is paying about $12 for every dollar Apple earned last year which is a lot less than they are paying for every dollar that the S&P 500 earned.

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    Posted: 30 May 2011 08:29 AM #3

    asymco - 30 May 2011 09:23 AM
    mbeauch - 30 May 2011 04:17 AM

    Nag, I would not put to much faith into that chart, it is not accurate. AAPL traded at a 50 p/e late in 07 and more recently was well over 20.  rolleyes

    They seem to sample once a quarter. I used to track this data daily but now I do it weekly. A better metric would be to compare P/E ex cash divided by trailing growth. That figure is now nearly at the same level as during the recession of 2009 (0.2). Which is to say the lowest in a decade.

    The market is paying about $12 for every dollar Apple earned last year which is a lot less than they are paying for every dollar that the S&P 500 earned.

    Ex cash only if management is doing something with the cash. Since AAPL doesn’t do anything with its cash, models will disregard cash. However, investors should track the PE after backing out cash because the day will come when Apple does do something with its cash. The day management begins doing something with its cash, let us hope, will not be a thoroughly useless one-time special dividend.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
  • Posted: 30 May 2011 08:36 AM #4

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

         
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    Posted: 30 May 2011 08:46 AM #5

    Hamourabi - 30 May 2011 11:36 AM

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

    If cash doesn’t do anything, then why count it? Apple’s cash earns a small return and trading models aren’t accommodating its underlying fundamental value at this time.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
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    Posted: 30 May 2011 09:22 AM #6

    Eric Landstrom - 30 May 2011 11:46 AM
    Hamourabi - 30 May 2011 11:36 AM

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

    If cash doesn’t do anything, then why count it? Apple’s cash earns a small return and trading models aren’t accommodating its underlying fundamental value at this time.

    Idle assets are not discounted unless they depreciate. If Apple used the cash to purchase another unused asset like real estate, it is still accounted for as an asset.

    By your logic if Apple destroyed the value of its cash by “using it” in failing projects then the company should be more valuable.

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    Posted: 30 May 2011 09:30 AM #7

    Turning back to the picture. 

    Clearly, there has been some P/E compression.

    Will it continue to gravitate lower?

         
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    Posted: 30 May 2011 09:32 AM #8

    Eric Landstrom - 30 May 2011 11:46 AM
    Hamourabi - 30 May 2011 11:36 AM

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

    If cash doesn’t do anything, then why count it? Apple’s cash earns a small return and trading models aren’t accommodating its underlying fundamental value at this time.

    By your very flawed logic AAPL would be valued the same if it had $300 billion in cash. Also by that same flawed logic, it would be valued the same if it had 60 Billion in debt (since that debt “isn’t doing anything”). Just because Apple hasn’t smacked most people in the face with their plan for the cash pile doesn’t mean it has no value.

         
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    Posted: 30 May 2011 09:46 AM #9

    ChasMac77 - 30 May 2011 12:32 PM
    Eric Landstrom - 30 May 2011 11:46 AM
    Hamourabi - 30 May 2011 11:36 AM

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

    If cash doesn’t do anything, then why count it? Apple’s cash earns a small return and trading models aren’t accommodating its underlying fundamental value at this time.

    By your very flawed logic AAPL would be valued the same if it had $300 billion in cash. Also by that same flawed logic, it would be valued the same if it had 60 Billion in debt (since that debt “isn’t doing anything”). Just because Apple hasn’t smacked most people in the face with their plan for the cash pile doesn’t mean it has no value.

    How is the cash valuable to shareholders? It isn’t used for share buybacks. It isn’t used for a regular and predictable dividend and it isn’t earning enough of a return to create a meaningful move in the PE. Because of this, cash isn’t necessarily discounted outright, but it isn’t reason to inflate the PE. As a result, back the cash out of the PE.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
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    Posted: 30 May 2011 10:29 AM #10

    Eric Landstrom - 30 May 2011 12:46 PM
    ChasMac77 - 30 May 2011 12:32 PM
    Eric Landstrom - 30 May 2011 11:46 AM
    Hamourabi - 30 May 2011 11:36 AM

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

    If cash doesn’t do anything, then why count it? Apple’s cash earns a small return and trading models aren’t accommodating its underlying fundamental value at this time.

    By your very flawed logic AAPL would be valued the same if it had $300 billion in cash. Also by that same flawed logic, it would be valued the same if it had 60 Billion in debt (since that debt “isn’t doing anything”). Just because Apple hasn’t smacked most people in the face with their plan for the cash pile doesn’t mean it has no value.

    How is the cash valuable to shareholders? It isn’t used for share buybacks. It isn’t used for a regular and predictable dividend and it isn’t earning enough of a return to create a meaningful move in the PE. Because of this, cash isn’t necessarily discounted outright, but it isn’t reason to inflate the PE. As a result, back the cash out of the PE.

    Option value.

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    Posted: 30 May 2011 06:07 PM #11

    Eric Landstrom - 30 May 2011 12:46 PM

    How is the cash valuable to shareholders? It isn’t used for share buybacks. It isn’t used for a regular and predictable dividend and it isn’t earning enough of a return to create a meaningful move in the PE. Because of this, cash isn’t necessarily discounted outright, but it isn’t reason to inflate the PE. As a result, back the cash out of the PE.

    Hmmm, and here I always thought (or at least all the cool guys and gals told me so) that WS is “forward-looking”. That doesn’t sound like what you’re describing at all. Now your’e saying that they’re “rear-looking”.  Jeez, I wish they would make up their minds!

    Apple’s like the crazy neighbor that has stockpiled guns, ammo, a few RPGs, a tank and who knows what. Who knows what they’re going to do next! As a short, do you really want to cut across their property to save a few steps to get to the creek? grin

         
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    Posted: 30 May 2011 06:34 PM #12

    Eric Landstrom - 30 May 2011 11:46 AM
    Hamourabi - 30 May 2011 11:36 AM

    Ex cash only if management is doing something with the cash. Since AAPL doesn?t do anything with its cash, models will disregard cash

    I am quite sure your statement is untrue

    If cash doesn’t do anything, then why count it? Apple’s cash earns a small return and trading models aren’t accommodating its underlying fundamental value at this time.

    Some of the cash is used to prepay for new designs with suppliers, others to prepay for better terms.

    So, if a part would normally “cost $100” under normal large volume purchasing, but Apple PREPAYS for it now, and gets a 10% discount, that effectively produces a “yield” on the invested cash of 10% not to mention depriving competitors of advantageous pricing, and potentially unavailable supplies.

    This is VERY DIFFICULT to quantify, but can actually produce a much higher potential “return” than even the most attractive bond yields.

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    Posted: 31 May 2011 02:29 AM #13

    Chas, you had me at tank. tongue laugh

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    Adversity does not just build character, it reveals it.