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).
Published by Gemmer Asset Management LLC The material presented (including all charts, graphs and statistics) is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The material is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objective, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this material is suitable for their particular circumstances and, if appropriate, see professional advice, including tax advice. The price and value of investments referred to in this material and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or prices of, or income derive from, certain investments. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Gemmer Asset Management LLC (GAM). Any mutual fund performance presented in this material are used to illustrate opportunities within a diversified portfolio and do not represent the only mutual funds used in actual client portfolios. Any allocation models or statistics in this material are subject to change. GAM may change the funds utilized and/or the percentage weightings due to various circumstances. Please contact GAM, your advisor or financial representative for current inflation on allocation, account minimums and fees. Any major market indexes that are presented are unmanaged indexes or index-based mutual funds commonly used to measure the performance of the US and global stock/bond markets. These indexes have not necessarily been selected to represent an appropriate benchmark for the investment or model portfolio performance, but rather is disclosed to allow for comparison to that of well known, widely recognized indexes. The volatility of all indexes may be materially different from that of client portfolios. This material is presented for informational purposes. We maintain a list of all recommendations made in our allocation models for at least the previous 12 months. If you would like a complete listing of previous and current recommendations, please contact our office.