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Comment by yeldarb | Hacker News Reader

Apple's multiple has always been much lower than almost every other tech company. It's always seemed completely irrational to me.. which is why I hold a lot of AAPL.

They continually grow, make a boatload of money every quarter, and pay a good dividend.

For reference, P/E Ratios:

AAPL 18.26

GOOG 38.9 MSFT 63.9 FB 35.8 AMZN 350.9 IBM 36.6 HPE 66.7 NFLX 211.9

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Looked at another way, it could be that Apple is much worse at finding things to reinvest its large amount of profit in to boost company growth.

This is correct and accounts for a significant percentage of the difference. Apple's extremely large cash horde drags down the top line P/E.

No, you have this precisely backwards. The cash increases its PE.

The easiest way to illustrate this is to imagine they had 1 trillion in cash instead of 280 billion. Their market cap would go up 720B meaning their PE would increase.

Conversely, if their cash decreased so would their PE.

You're right that if their cash decreased their PE would go down, all else equal. But if they used it to fund a promising venture that would likely increase their future earnings more than clipping coupons on the equivalent in t-bills or whatever their cash is sitting in, then their price would probably go up. And so the fact that they allow so much cash to build up might drag down their P/E relative to other companies, counterintuitively.

You're right. I was totally backwards. I...cannot explain how I screwed that up in my head. Thanks for the correction.

Apple’s beusiness is riskier, as iPhone’s advantage is slowly vanishing while the price is hiking up. If they can’t convince people to change iPhone every 2 years, their business will be affected drastically.

People think IBM has more growth potential than Apple!?

You forgot my favorite P/E, Salesforce's:

14,776

That's not necessarily bad, it could just mean they're re-investing basically all of their would-be earnings into themselves

It's a fraction with a numerator and denominator. The demoniator can be 0.00001 sometimes. Any PE over 50 or so is effectively meaningless, everyone in finance knows to just ignore them at look at better valuation metrics.

Also there's a pretty good argument that the PE is a useless ratio that should be actively ignored, they haven't correlated strongly with anything in like 20 years.

How does that work, accounting-wise? Isn't re-invested capital coming out of profits by definition? Otherwise a company could just "re-invest" all their would-be profit into gold (or some other store of value) and claim to have made zero profit. I don't think the IRS would be too happy about that.

They basically are.

476 no?

Apple's always gone through booms and busts - and if they transition to a bust again, Steve Jobs will not come back to save them.

I also find it questionable whether 18.26 is a "low" P/E. I still think of 15 as a normal P/E for the whole market. Although perhaps we will have low interest rates forever.

“Always gone through booms and busts” as in they started in the late 70s, grew really fast, stalled out in the 90s, and then have been on one unprecedented 15-year “boom” since about 2000 which made them the most profitable company in the world?

Otherwise, I don’t quite get which cycles you are referring to.

As far as I can tell, you seem to be agreeing with me.

It's certainly low relative to any reasonable comp. Whether it's low in absolute terms is pretty subjective (but if you think 18 is expensive for a company with double digit growth, 280B in cash, and a 1.5% yield, I'm curious what's left out there to buy).

P/E right now is 23.3 for the S&P, 27.8 for the Nasdaq, and 27.7 for the Dow.

I'm not sure that it makes sense to pay proportionately more for a company with more cash. Whatever return Apple produces on its investments in making iPhones and such, cash tends to reduce that. So it seems logical that it would be valued more conservatively than a company that holds less cash.

I also think that it is reasonable to consider that the whole market might be overvalued, given that nobody can predict the future and we are at historic lows with regard to interest rates. So it isn't outrageous to consider a historical average P/E for reference, rather than the average P/E right now.

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