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If anyone's confused by the stock price, it's simple. Profits are flat since this time last year. This time last year the stock was around $420 and that's where

If anyone's confused by the stock price, it's simple. Profits are flat since this time last year. This time last year the stock was around $420 and that's where the stock is heading today.

padmanabhan01 14y ago
So, for the same profits, we had a stock price of 420 this time last year and ~515 today. So, you automatically assume 420 was the right number and 515 is not, and that it will head toward what you think is the right number? Got it.
- KaoruAoiShiho 14y ago
  It's a $458.00 as I'm typing. I don't necessarily think 420 is more right, I'm just explaining the situation. Many commentators were confused by the price movement. Don't shoot the messenger. But to justify a higher price today you would have to believe that apple is more competitive in the overall market this year than it was last year and I don't think it is.
  - fleitz 14y ago
    Sure, but the question is then why AMZN earnings justify 250 times the prices of APPL earnings, or GOOG earning justify twice the price. Also, growth of growth is flat, not actual growth which is still quite positive. Last year they made $25 billion, this year they made $41. But of course the rate of growth is smaller than the year before last when they only made $14 billion. This according to Wall St means they are failures. Lets put it this way, APPL's earnings growth is twice GOOG's total earnings.
    - chucknelson 14y ago
      I would love for someone to explain how Amazon's P/E is justified. It seems like insanity when you see how Amazon's core business model does not revolve around profits (or so it seems).
      - tedunangst 14y ago
        Amazon's business model revolves around future profits. The stock price reflects that. P/E isn't a particularly useful indicator of anything.
        chucknelson 14y ago
        Future profits that are coming...when? Considering their margins seem to always be razor thin, I'm not sure what investors are expecting.
    - jarek 14y ago
      > This according to Wall St means they are failures. No, it doesn't. (edit: they are failures when it comes to keeping up their growth rate, yes.) But if previous stock price was arrived at by assuming rate of growth would stay constant, the stock will drop if rate of growth drops, as according to best available prediction the company will be worth less in the future than you had previously expected. Stock prices are influenced by all kinds of predictions, guesses, and voodoo for present and future. It's a good idea to not to attach too many personal feelings or judgments like "winner," "best," or "failure" to the stock for this reason.
arrrg 14y ago
But wasn’t the current quarter one week (so seven percent) shorter than the year ago quarter? Does that matter?
- glasshead969 14y ago
  I don't know if its good or bad for apple but I hate it when articles fail to mention this difference when comparing.
- pazimzadeh 14y ago
  That's right. http://www.apple.com/pr/library/2013/01/23Apple-Reports-Record-Results.html http://www.apple.com/pr/library/2013/01/23Apple-Reports-Reco...
- aetherson 14y ago
  Probably doesn't matter a ton. What seems to be driving the modest sell of Apple right now are: 1. Revenue slightly below estimates. Analysts knew that this quarter was a week short and built that into the estimates. 2. Profit MARGIN way down from year-ago-quarter. It doesn't matter that this quarter is short, it's the ratio of profit to revenue, not the gross amount of profits. Also, profits short of expectations, and, again, the short quarter was built into expectations.
millstone 14y ago
Google's profits were nearly flat since this time last year, yet they're up 25%.
- gdilla 14y ago
  Right. Isn't stock also an indication of future performance expectation (at least in some part)?
  - aetherson 14y ago
    It's ENTIRELY an indication of future performance expectation.
- arcticfox 14y ago
  Over the past year, Apple has shown (slight) vulnerability, whereas Google has looked like an even more formidable competitor moving forward
  - _Simon 14y ago
    What is this assumption based on?
- robryan 14y ago
  It is probably as simple as Google beat expectations while Apple missed expectations, these expectations being priced into the share price before the announcement. The share prices are now just correcting based on the actual results.
HSO 14y ago
Right, except they now have 137bn in cash and equivalents, the quarter was a week shorter (~ 7 percent more of everything at a constant rate), they explicitly warned that ramp-up would affect margins and availability in their last call (and the margins actually are better, so go figure about the margins next quarter and on), etc etc... So, yeah, I guess I'm kind of confused now by the market reaction. Perhaps you can explain to me again the rationale? But perhaps I shouldn't be confused, really. I should finally learn from history to not overestimate humanity.
- Steko 14y ago
  "the rationale" Joe Bull thinks maybe Apple will have a super blowout beat $60 bln quarter the way last xmas quarter beat estimates by a mile. If so the stock will go north of $600 fast, maybe push $700. Didn't happen so he sells.
- j-g-faustus 14y ago
  Consider a simple model where the "fair value" of a company is the sum of their next 10 years of profit: If a company made $1m last year and is expected to stay flat for the next decade, it's worth $10 million. If a company made $1m last year and profits are expected to grow 10% annually, it's worth $16 million. If a company made $1m last year and profits are expected to grow 100% annually, it's worth $1 billion. The implicit model for stock pricing is more complicated, but you can see correlations even in a simple model like this. Nobody knows what will happen several years into the future, so it's mostly bets and speculations. Especially in high-growth companies, where many of the bettors appear to believe that trees grow to heaven, and the company's yearly profits will soon exceed the world GDP. So the stock of high-growth companies sell at an enormous markup compared to current profits. By the same token, that markup can evaporate very quickly if a formerly-high-growth company shows any sign of slowdown. In terms of the simple model above: If traders used to think that the $1m-profit company would grow 60% annually for the next decade, and something happens that makes them believe that it won't be more than 40%, the value of the company would immediately drop by more than 60%.
  - millstone 14y ago
digikata 14y ago
I think Benjamin Graham's Mr. Market allegory is applicable here: http://www.investinternals.com/2009/08/grahams-mr-market-allegory.html http://www.investinternals.com/2009/08/grahams-mr-market-all...
seiji 14y ago
Idea: using the assumption of stock prices being based on future growth (and not outright mass un-correlateable manipulation), Apple is the most profitable company ever -- and nobody can see beyond that. Average people can't imagine anything bigger. They think it must fall. They don't understand technology or nonlinearites.

If anyone's confused by the stock price, it's simple. Profits are flat since this time last year. This time last year the stock was around $420 and that's where the stock is heading today.

padmanabhan01 14y ago

So, for the same profits, we had a stock price of 420 this time last year and ~515 today. So, you automatically assume 420 was the right number and 515 is not, and that it will head toward what you think is the right number? Got it.

KaoruAoiShiho 14y ago
It's a $458.00 as I'm typing. I don't necessarily think 420 is more right, I'm just explaining the situation. Many commentators were confused by the price movement. Don't shoot the messenger. But to justify a higher price today you would have to believe that apple is more competitive in the overall market this year than it was last year and I don't think it is.
- fleitz 14y ago
  Sure, but the question is then why AMZN earnings justify 250 times the prices of APPL earnings, or GOOG earning justify twice the price. Also, growth of growth is flat, not actual growth which is still quite positive. Last year they made $25 billion, this year they made $41. But of course the rate of growth is smaller than the year before last when they only made $14 billion. This according to Wall St means they are failures. Lets put it this way, APPL's earnings growth is twice GOOG's total earnings.
  - chucknelson 14y ago
    I would love for someone to explain how Amazon's P/E is justified. It seems like insanity when you see how Amazon's core business model does not revolve around profits (or so it seems).
    - tedunangst 14y ago
      Amazon's business model revolves around future profits. The stock price reflects that. P/E isn't a particularly useful indicator of anything.
      - chucknelson 14y ago
        Future profits that are coming...when? Considering their margins seem to always be razor thin, I'm not sure what investors are expecting.
  - jarek 14y ago
    > This according to Wall St means they are failures. No, it doesn't. (edit: they are failures when it comes to keeping up their growth rate, yes.) But if previous stock price was arrived at by assuming rate of growth would stay constant, the stock will drop if rate of growth drops, as according to best available prediction the company will be worth less in the future than you had previously expected. Stock prices are influenced by all kinds of predictions, guesses, and voodoo for present and future. It's a good idea to not to attach too many personal feelings or judgments like "winner," "best," or "failure" to the stock for this reason.

arrrg 14y ago

But wasn’t the current quarter one week (so seven percent) shorter than the year ago quarter? Does that matter?

glasshead969 14y ago
I don't know if its good or bad for apple but I hate it when articles fail to mention this difference when comparing.
pazimzadeh 14y ago
That's right. http://www.apple.com/pr/library/2013/01/23Apple-Reports-Record-Results.html http://www.apple.com/pr/library/2013/01/23Apple-Reports-Reco...
aetherson 14y ago
Probably doesn't matter a ton. What seems to be driving the modest sell of Apple right now are: 1. Revenue slightly below estimates. Analysts knew that this quarter was a week short and built that into the estimates. 2. Profit MARGIN way down from year-ago-quarter. It doesn't matter that this quarter is short, it's the ratio of profit to revenue, not the gross amount of profits. Also, profits short of expectations, and, again, the short quarter was built into expectations.

millstone 14y ago

Google's profits were nearly flat since this time last year, yet they're up 25%.

gdilla 14y ago
Right. Isn't stock also an indication of future performance expectation (at least in some part)?
- aetherson 14y ago
  It's ENTIRELY an indication of future performance expectation.
arcticfox 14y ago
Over the past year, Apple has shown (slight) vulnerability, whereas Google has looked like an even more formidable competitor moving forward
- _Simon 14y ago
  What is this assumption based on?
robryan 14y ago
It is probably as simple as Google beat expectations while Apple missed expectations, these expectations being priced into the share price before the announcement. The share prices are now just correcting based on the actual results.

HSO 14y ago

Right, except they now have 137bn in cash and equivalents, the quarter was a week shorter (~ 7 percent more of everything at a constant rate), they explicitly warned that ramp-up would affect margins and availability in their last call (and the margins actually are better, so go figure about the margins next quarter and on), etc etc... So, yeah, I guess I'm kind of confused now by the market reaction. Perhaps you can explain to me again the rationale? But perhaps I shouldn't be confused, really. I should finally learn from history to not overestimate humanity.

Steko 14y ago
"the rationale" Joe Bull thinks maybe Apple will have a super blowout beat $60 bln quarter the way last xmas quarter beat estimates by a mile. If so the stock will go north of $600 fast, maybe push $700. Didn't happen so he sells.
j-g-faustus 14y ago
Consider a simple model where the "fair value" of a company is the sum of their next 10 years of profit: If a company made $1m last year and is expected to stay flat for the next decade, it's worth $10 million. If a company made $1m last year and profits are expected to grow 10% annually, it's worth $16 million. If a company made $1m last year and profits are expected to grow 100% annually, it's worth $1 billion. The implicit model for stock pricing is more complicated, but you can see correlations even in a simple model like this. Nobody knows what will happen several years into the future, so it's mostly bets and speculations. Especially in high-growth companies, where many of the bettors appear to believe that trees grow to heaven, and the company's yearly profits will soon exceed the world GDP. So the stock of high-growth companies sell at an enormous markup compared to current profits. By the same token, that markup can evaporate very quickly if a formerly-high-growth company shows any sign of slowdown. In terms of the simple model above: If traders used to think that the $1m-profit company would grow 60% annually for the next decade, and something happens that makes them believe that it won't be more than 40%, the value of the company would immediately drop by more than 60%.
- millstone 14y ago

digikata 14y ago

I think Benjamin Graham's Mr. Market allegory is applicable here: http://www.investinternals.com/2009/08/grahams-mr-market-allegory.html http://www.investinternals.com/2009/08/grahams-mr-market-all...

seiji 14y ago

Idea: using the assumption of stock prices being based on future growth (and not outright mass un-correlateable manipulation), Apple is the most profitable company ever -- and nobody can see beyond that. Average people can't imagine anything bigger. They think it must fall. They don't understand technology or nonlinearites.