From Hall’s “What would make us more positive?”, a note to clients that landed on my desktop Tuesday:
We downgraded Apple to a Sell rating on April 16, 2020 based on a big picture view that Apple is going ex-growth and a micro view that COVID-19 is likely to drive disappointing 2021 results. So far it would be an understatement to say that this call hasn’t worked, with Apple up 71% since our downgrade.
Our big picture view of Apple is grounded in the idea that the iPhone is a very tough act to follow, with Services and Wearables not likely to be large enough to return the company to growth. We also note that Apple’s Services narrative is nearly a decade old, with iCloud launching in 2011, and yet Services have not been able to drive consistent growth…
In this report, we highlight both Microsoft and Amazon as examples of companies that are delivering the numbers and yet are valued at about the same multiple as Apple.
We want to emphasize that we are not permanent bears on Apple. However, we also believe investors should follow the numbers and, in our opinion, these aren’t consistent with the narrative that has driven the stock to its highest premium vs. the S&P 500 since 2011, when iPhone penetration was accelerating.
Maintains Sell rating, raises price target to $80 from $78.50.
My take: Let’s follow one of Hall’s numbers. Amazon’s PE as I write this is 125.2 and Apple’s is 35.7. If Apple were valued at “about the same multiple” as Amazon its stock, by my calculations, would be selling for more that $400 a split-adjusted share.
See also: Rod Hall does it again.
UPDATE: Rod Hall responds:
Apple trades on a similar PEG to AMZN and MSFT – its actually a touch higher. That would be clear to you if you had read the report.
Hall introduces the price/earnings-to-growth ratio (PEG) is on page 13 of his report. Here’s that section: