Intel, Google, Apple: Valuation Anomalies To Consider

Over the years, I’ve learned that one of the fastest ways to look like a fool is to point out valuation anomalies. Such idiosyncrasies can very well matter, but in the face of fast-growing companies they can also give false-positive results.

Still, glutton for punishment that I am, I thought I’d point out a few that might be worth noting on some of the investment world’s (currently) favorite companies: Intel (INTC), Google (GOOG) and Apple (AAPL):

Intel trades at 14.6 times expected earnings, according to Factset. Other than the past few weeks, when its multiple slipped to 13.9-times, it hasn’t traded at these levels since July of 1996. Yet its stock, currently at $20, was $10 that last time the multiple was in such a slump. Making matters worse: Lest you think Intel is the grower it once was, annual sales have been flat over the past three years.

Google, meanwhile, trades at 23.6 times. Though a slight up-tick from recent weeks, it’s still hovering at its lowest levels ever, thanks in large part to a recent near-halving of its stock. When it went public in August 2004, it traded at 52.3-times expected earnings, rising to a multiple of 65.3 in July of 2006. Yet its stock, now $444, was $100 when its multiple was the former and $386 when it was the latter.

Finally, Apple, at 22.1-times, hasn’t been valued lower than this since December 2000. It was in full glory in June of 2003 when it boasted a multiple of 82.3-times earnings.

However, at its prior trough its stock traded at around $7.50. At the multiple’s peak, it was in the $9s. Now it’s $124.

Interpret at will.

The beat goes on…

Comments

[mjn185:]

This is another ridiculous article that attempts to bash companies that have had a slip in their earnings revenues. Of course a company like Apple or Google would have lower stock prices at a certain multiple point in the past. Once companies prove that they possess a consumer monopoly and can introduce products or services to the market that consumers will faithfully purchase then the stock price will be bid up. Apple of 2000 or Google of its IPO days were not the highly coveted growth machines that they are today. Even though there has been a slip in the stocks prices lately the fear-mongering that this article attempts is absolutely shameless. While your at it why dont you point to the valuation model for Coke or Pepsi or Altria as I am pretty certain that all of those companies used to have at one point valuation abnormalities. If you are going to bother to write an article how about attempting to balance it with some facts other than abstract numbers. Take the time to explain that proven performers garner a high price for their growth than slow performers and that as the stock gets beaten down the PE multiple drops. However since nothing has gone wrong with the underlying fundamentals of the business intelligent investors are not going to rush away in a panic. They will see this as a great buying oppurtunity and accumulate shares. In close my question to this author is "Do you really think that Apple is ever going to trade at 7-9 dollars or Google is going back to 100." That is as likely to happen as you rewriting this article with some balance to your information.

2008 Mar 06 06:23 AM

[HallRainwater:]

Boy, did I read the same article as the last poster? I thought the story was about good companies being on sale at prices relatively as cheap as their market lows. The only caution was that Intel has had flat sales for 3 years.

2008 Mar 06 07:19 AM

[shark1001:]

Great post mjn185. Exactly what I said about this authors previous articles. When he appears of CNBC, I change the channel, don't have time to listen to his nonsense.

2008 Mar 06 08:54 AM

[Rajiv Sethia:]

Hey, cut the guy some slack, all he is saying is that these companies are trading at one of their lowest P/E multiples. And it is interesting to see what the price was when they last traded at those multiples. Not that it is terribly relevant but it certainly is interesting as it points out how far in the past that was, and how far these companies have come in increasing the "E" so that the lowest multiple now has a significantly higher price than in the past.

2008 Mar 06 09:20 AM

[David Lentz:]

Herb, I gotta agree that you've run off the tracks if you mean that when stocks have the same valuation as they did when they were younger companies that they should also have the same prices -- the companies have changed, the markets have changed, and there is simply no way that comparing valuation metrics and prices in a historical context can ever make any sense. You can compare valuation metrics in a historical context, and that can have some meaning, and you can compare prices in a historical context, which has somewhat less meaning. But comparing valuation metrics AND prices in a historical context is simply meaningless. The companies have grown/shrunk and their markets have also changed. So of course the relationship of stock prices to valuations will have also changed. Nobody expects a company's earnings to retreat to the same levels that they were 6-8 years ago, as they are doing a lot more (hopefully more) business with the same (or close to it) number of shares outstanding.

Or perhaps we have not understood at all what you were intending in this piece -- care to elucidate?

2008 Mar 06 09:21 AM

[jcrash:]

I think his point was to generate responses, since his article doesn't actually say much.

Personally, I think one of those stocks is in one of those situations where you will kick yourself in a couple years for not buying it right now.

The others, not so much.

2008 Mar 06 09:33 AM

[wobatus:]

If GOOG traded at $100 it would have a forward p/e of 5. If apple was $7.50 it would have trailing p/e below 2. Just interpreting at will here.

The suggestion seems to be if you are a very fast grower, buying at the p/e trough is a good idea (although intc only doubling in 12 years isn't so great, but we are talking trough to trough and Herb points out it has stopped growing). Question is where that trough will be.

Not sure this is all that relevant other than to point out p/e ratios are fairly low, probably because people don't expect growth to be as good, or, perish the thought, income may shrink. All the PEG obsessive crowd will be so confused if companies have any p/e if growth goes negative.

2008 Mar 06 12:14 PM

[beenright:]

I have only had a half a cup of coffee, but are you people reading this article correctly? I think I am and I think he is saying these valuations are awefully low historically for GOOG and AAPL. He is comparing how low the multiples + stock price are relatively very low compared to historical values for these companies when both companies are still growing quickly.

While I am a GOOG owner (avg $510/shr), I do not mind at all the price is going down. I am a long term investor and once the bottome is clear (which it is not yet) I will buy more. This may be the bottom but we will not know for at least 2-4 weeks after it hits bottom and when 20 day MA meets 50 day MA, that is the signal we hit bottom and time to buy.

Good luck.

2008 Mar 06 01:44 PM

[conscriptor:]

i'll vouch for the outsized schadenfreude ratio on GOOG!

rest assured there are plenty of investors who sat out the GOOG phenomenon - scared to get on board at the top - who can rest more easily as this baby comes down to earth.

2008 Mar 06 05:01 PM

[rmunoz:]

one of the most stupid articles I have ever read, this guy ignored a lot of important and relevant factors when he did his analysis..

2008 Mar 09 07:59 PM

[Julian:]

I am amazed at how people are so passionate about this article having poor analysis. There is not supposed to be conclusions being drawn. He is simply presenting some data and allowing you as the reader to interpret it as you wish. There is not even an undertone that prices are too cheap or too high and some of you guys are reading these undertones yourselves and getting worked up. Give the writer some credit for being meticulous enough to collect the data - this is of much greater value than most of the emotional comments above.

2008 Mar 12 06:43 PM