Investing is a fundamentally personal endeavor, because there's no "one size fits all" approach. Different needs, different levels of risk tolerance, different goals, different styles, and different results -- this describes why some people generally buy only dividend paying companies like myself, and why some people are more into speculating micro-cap companies. There's no right answer that's identical for every investor.
Still, reasoning is typically either right or wrong. You might not buy into a company for personal reasons, but that doesn't mean the reasoning you used is right. For one such example, just look at the recent SA article about Apple (NASDAQ:AAPL) entitled "Apple: Take The Money And Run".
I'll be defending Apple as a company in light of the arguments made by George Kesarios. This doesn't mean I'm an investor in Apple or a "fanboy." I'm not. The company is not my style of investment for different reasons (I like companies with a history of dividends like Chevron (NYSE:CVX), Exxon (NYSE:XOM), Wal-Mart (NYSE:WMT), or Ford (NYSE:F). And yes, Ford still counts in my book.)
Still, it's important for there to be balance, and George's article is in desperate need of a balanced response.
George made an interesting argument, saying:
"One thing I don't like about Apple is its Price/Sales ratio. I feel very uncomfortable owing a stock at 4-5 times sales. Yes I know it's not an indicator many follow, but they should. From my experience, when a company's margins get squeezed, stocks with high price to sales ratios get hit the most."
First, price-to-sales ratio is important, but not remotely as important as is made out in the article above. It's best if it is analyzed only through price-to-earnings lens -- because earnings is what we're after, in the end. This is why price-to-sales is generally more important for unprofitable companies, because you can't see price-to-earnings.
Well, Apple is profitable. Very profitable. And going by price-to-earnings ratios, they're very modestly priced. One has to wonder if it's because of all the paranoid people not buying the stock out of fear that it will burst because of all of the optimism? Who knows.
Even then, Apple's price-to-sales ratio is only marginally higher than Microsoft's (NASDAQ:MSFT), which, as he explained, has had a pretty boring decade. And yes, the market is right about this -- Apple's sales are just worth more than Microsoft's.
High Margins Won't Last Forever
This was at least a better argument than the one listed above. George explained that Apple's margins won't last forever. He's right about this, and eventually, I'm sure they'll begin to come back down to earth.
Still, think about the argument right now. It's essentially "the company is so insanely profitable; it can't be so wonderfully profitable forever because it's just too wonderful." This is certainly cause for caution, but not remotely a selling signal, especially not considering the company's valuation in light of P/E, PEG, and almost all other variables.
It's modestly priced. If you're a speculator or a medium term investor, it's likely still got great growth built in, especially as the iPad continues to replace PCs and become a common electronic tool. It's not as high profit margin as the iPhone, but it's still profitable.
Note that I just recently sold my iPhone and replaced it with a much, much cheaper phone, so I fully understand the fears of unsustainable profits from Apple products. This is a legitimate concern, but it's not in and of itself a selling point -- especially not in light of overall growth that looks strong and still modestly priced.
The World Economy Is Broken
This was the third basic argument made, and I'm not sure why it was made at all. The economy isn't perfect, nothing short of economic collapse is going to take Apple out, and even then the company is sitting on so much cash they'll be positioned to fight back against macroeconomic trends more than most companies.
Even then, fears of people not affording Apple products don't make sense in light of the last four years. The company has grown more during economic hell than most companies hope to ever grow even if they could party like a tech stock in the 90s. This is an unsubstantiated fear.
In the end, Apple is a solid company, and investors should be looking forward to great returns. I don't own any because it's not my style and there are other great companies. Still, someone had to respond to the arguments against Apple.
Sometimes people make poor arguments against the company and then write off all responses as being from "fan boys." Hopefully, this will help quell that general response.