One of the few stocks holding its ground in today’s sell-off is Apple Inc (NASDAQ: AAPL), which is now the largest company in the world, beating Exxon by over $60 billion in valuation. Since the quarterly report, Apple stock has been like a moving bus or a tank for that matter, as the stock powers ahead with strong momentum. Profit for the company had almost doubled over the previous quarter, that’s right quarter, as Siri helped to sell iPhones left and right, and the iPad broke record sales. Now with rumours on the horizon about the next iPad 3 along with reports that the US government is testing out 18000 iPads, people are starting to get excited once again. Apple is likely drawing in new retail investors from all over the world, who love the products that the company makes and want a piece of the upside.
Some say that Apple’s seemingly rich valuation is reason enough to sell the stock. However it should be considered that they have the earnings power and the rapid growth to back up that valuation. The average Price-Earnings ratio or PE for the S&P500 is around 14 times forward earnings. If Apple is better than the average stock, it should trade at a premium to the market PE ratio. However Apple stock trades at 14 times its earnings that have already passed. Investors have yet to factor in the enormous growth rate that the firm has been able to consistently increase over time. Throwing in Apple’s pristine balance sheet with approximately one fifth of its market cap in cold hard cash, the company trades for 7 or 8 times next year’s earnings when the cash pile is withdrawn from the equation. That explains why investors believe that Apple can continue heading higher ever after it beat the bullish analyst consensus estimates by 38% in the last quarter. While this was the best beat of any stock in the market, Apple still trades at a hefty discount to the average stock. Will it continue heading higher? Nothing is for certain, however the rate at which it continues to hit its 52-week high, and the anticipation of new products could send it through the roof.
To the point.. I guess just the sheer size of market cap of AAPL is holding the price down, but it that doesn't really seem to be much of a valid nor lasting argument, hence the "tank" should continue, slowly, but surely...
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