Apple Hits $1 Trillion

Posted on August 2, 2018 by Gemmer Asset

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Well, it finally happened. On the back of a very positive earnings release, Apple hit $1 trillion in market cap.  That’s a “1” followed by 12 zeros…

 

Its hard to remember those pre-iPhone days, but amazingly it wasn’t that long ago. The first iPhone was released in June of 2007. To put the recent news in perspective, the company’s market cap was $91 billion back then… that’s a $909 billion dollar increase!!

 

More impressive than the market cap move itself is how the company got here. Often times huge market cap run ups happen without earnings keeping pace, which leads to a very high P/E ratio (think Amazon) – that’s if the company has actual earnings. Look at an extreme example: Tesla. Since their IPO in 2010, their market cap has gone from about $1.5 billion to $57 billion today – all while having no earnings.

 

 

And in fact if you take the company’s estimates of what earnings will be in 2019 (they show a positive number), that would put their P/E ratio at 285x. How does Apple’s P/E ratio compare? 18x. The stock is priced at 18 times earnings. It was 38x back in 2007.  Bottom line, Apple’s earnings have more than kept up with the price increase.

 

This isn’t to say that high P/E ratios are necessarily bad, or that we should even be comparing Apple and Tesla – two companies at very different stages of growth. We’re merely trying to put into perspective how impressive it’s been to see a company grow to these levels while keeping their P/E ratio below that of the S&P 500 (20x).

 

 

 

 

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