Why Apple’s Stock is Half What It Could (and Should) BeAuthor: Johnny5k | Filed under: Apple, Big Business, Stocks
Another quarter, another blowout earnings report from Apple. The stock hit an all-time high shortly after the report, surging 8% in after hours trading. That may sound like a lot, and it is especially considering Apple’s already astronomical market cap; but considering Apple’s earnings were around 33% higher than even some of the loftiest expectations, 8% is a pretty conservative jump. This seems to be a trend in the past few years, as is evident in the chart below. Apple’s quarterly revenue and stock price are plotted out over the same 8-year time period.
From 2004-2008 Apple’s stock price followed a similar path as their quarterly earnings. The overall market turmoil is evident in 2008-2009, but by 2010 the stock was coming back in line with earnings; however by the end of 2010 and through 2011, as revenue skyrocketed, the stock made relatively small gains. Had the stock continued to follow earnings, it would be over $800 – almost double its current value.
You could say that Apple’s earnings have just gotten too big, and there’s no way the stock price could possibly keep up with it. You could say that, but it’s not like this is the first time Apple’s had revenue spike so fast. In From 2004-2008 – the height of the iPod’s success – Apple’s revenue chart looked almost identical to the chart from 2008-2012, just with much larger numbers.
In 2008, with Apple announcing close to the same kind of year-over-year gaines in revenue, not only was the stock keeping up with the earnings surge, it was beating it. So maybe it’s not so crazy to think the stock could be at $800 or more today. Obviously, it’s not. But hopefully (for shareholders) it’s an error the market will correct in the near future.Note: AAPL is currently around $445. Disclaimer: I’m long on Apple.