I’ve been part of or closely following Apple since December 1980 and have noted the almost constant skepticism surrounding the company: ‘Yes, Product X, Y, or Z is doing well right now, but it won’t last.’ I’m curious to see how the kommentariat will react to the coming January 28th earnings report and guidance for the following quarter. We’ll see if today’s high valuation is a fluke or a new normal.

Origin: Monday Note – Tesla and Apple Valuation Questions

A year ago, on January 2nd 2019, Apple delivered bad news: Its revenue guidance for the quarter just started was reduced by $9B, from $93B “guided” in early November to $84B. As a result, Apple shares plunged to about $152.

One year later, on Friday January10th 2020, Apple closed a little above $310/share and the company’s market cap reached an all-time high of $1.38T (T as in a trillion dollars, one thousand billion). Skipping comparisons to countries’s GDPs, we must ask what caused such a jump in an already large valuation, adding more than $500B to the company’s market cap (the number of shares varied as Apple aggressively repurchased its shared during the year).

An often used measure of market sentiment is the Price/Earning (P/E) ratio of a company. Unfolded, the P/E ratio tells us how many dollars a share (P) a buyer is willing to put on the table to acquire a dollar of earnings (E) for a given company. The higher the P/E, the higher the market’s opinion of the company’s future. For most of its existence, Apple has had a low P/E score, leading Marc Andreessen to observe that Apple traded “like a steel-mill going out of business”. In his January 2018 Apple 3.0 post, Philip Elmer-DeWitt published the following chart that compared the P/E ratio of a few notable companies:

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