1 month agoFrom “Apple has to really be concerned for the long term, says Charter’s Ed Snyder” which aired Friday on CNBC:
My take: The reference at the 2:32 mark, which I had to look up, is from the Godfather.
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[SEES TWO CROWS PERCHED OUTSIDE]
“—whoa, waddaya say the odds the left guy takes off first? Any significance on that fence rail? What’s the smart money thinking here?”
Perfect example!
So the kind of nonsense spouted in this story just makes the writer seem oblivious to reality. And if investors are just as oblivious, it will only mean that they’ll be missing the Apple boat – again.
Look. Not everyone who got a haircut didn’t deserve a haircut. I’ve seen what I consider to be enormous overvaluation on certain stocks over many years. I suppose Apple, when it hit a P/E of over 40 back in the beginning of December, 2020, could have been said to have been “overvalued”, but how long did that last? Does anyone else remember that the price when Apple was valued at a 40+ P/E was also about the lowest price hit in the last pullback, or around $132/share, split adjusted? But this time the P/E at $132/share was about 21+. That’s a massive difference in valuation at the same price achieved less than 2 years ago, in early December, 2020.
What’s also remarkable is that whole valuation difference between 40+ and 21+ is down to increased net income and buybacks. Ask yourself: what would AAPL be worth today if it hit a 40+ P/E valuation?
So yes, there’s every expectation that Apple will in fact be one of the primary companies, if not the primary company, “taking the lead” in rebuilding market valuation.
I generally agree. The only difference is I see share price progression over time being determined by EPS growth, not net income growth. And the charts I’ve made starting in 2009 seem to bear that out.
Of course net income is the primary driver of EPS growth, but what you said was “share price progression over time is determined by the pace of net income growth”, when it is actually determined by the pace of EPS growth, which includes both net income growth and the impact of share repurchases.
And rightly so.
Again, you’re preaching to the choir. But the reality is that, over a course of many years, the stock price follows the EPS much more closely than it follows the net income.
Please don’t shoot the messenger!
Finally, if you’re going to insist on generalizing, the real source of increasing stock price is Apple’s continuous product development, which really means the genius of Apple’s product development team and Apple’s leadership. Because without them there would be no phenomenally growing cash flow, no growing net income, and no growing EPS.
“Her Aunt made her buy Bell Telephone shares.“
We should all have aunts like that!