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Why Apple Is Still A Buy Even Though Amazon And Google Have Better Products
I remember when everyone was saying Cisco Systems would be the first trillion dollar company in 1999. Well, it got about half way there and today it has a market cap of $112 billion. Times change and certain technologies become less important over time. Although today it seems nearly impossilbe to believe, Apples technology in another 5 or 10 years may become less important to the average person (just as it was hard to believe CSCO's products would be in 1999) which will cause lower margins and growth rates in the future..
AAPL's valuation was (a few months ago) running into the law of large numbers. World GDP was $70 trillion last year. A trillion dollar AAPL market cap would mean that its value was 1.4% (roughly) of the world GDP. There simply isnt enough money in the world to justify that valuation in a product that is optional to most people (unlike food, gasoline, etc) For example, the USA is the wealthiest country in the world, and the mean income is roughly $60K. 1.4% of $60K is about $1000. Is the average American going to buy $1000 in Apple products each year in the future to justify this valuation? This is just the USA, and I am not even including the rest of the world, most of which is signficantly poorer. Most humans cannot even afford an AAPL product, which implies a greater burden on the richer parts of the world to buy AAPL products to justify the trillion dollar valuation.
So, a company this large relative to GDP cannot grow 20% for very long, and a single digit p/e is appropriate. Im not saying that AAPL is overvalued here at $440 (I thnk it is close to a buy too), but no way it deserves a trillion dollar valuation.
Jan 28, 2013. 01:05 AM
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