I liked reading your post, but was confused by a couple of things. You really believe it is overpriced right now? It earns 45 dollars per share, trades under 440, and offers a 2.65% dividend. I don't get how that is overpriced. They still saw YOY growth in iPhone, iPad, Revenue and EPS. They have projected to have YOY growth for revenue Q2 2013. I completely understand that this growth has dropped off from triple digits or high double digits, but fail to see how it could still be overpriced at 440. I am expecting the institutions to keep shorting it down, but am expected it to rise once this period is over. It feels very very oversold right now, especially because it is giving dividends.
What I'm not seeing in your statement above is a methodical, analytical piecing together of those ratios and concepts into a hard price from an M&A perspective. An example would be discounted cash flow analysis. As I've stated before, I tend to use working capital (current assets minus current liabilities) plus several quarters forward projected operating cash flows. This leads to a very conservative estimate of value, but one that I find comforting because it gives me a very large margin of safety.
Some M&A consultants use a triangulation of this metric, total enterprise value and say PEG relative to the industry, but I don't find price to earnings to be a meaningful metric because it tells me only what ridiculous premium everyone else is willing to pay, not what I should want to pay, for the same asset.
At the current time, the operating value of Apple is more than 40 dollars per share below their current market price. Even if it were 40 dollars above, that would only give me roughly 10% margin of safety and that doesn't make me very comfortable.
If you are to be greedy when others are fearful, why wouldn't one want to buy right now? People are having a fit over 54.5 billion in revenue for one quarter. And there are still lots of potential for expansion across the world of their two product lines. We also have no idea what they have going for future revenue products. I doubt that many are expecting a product that could sell like the iPhone or iPad, but adding new revenue would certainly boost their case.
I still think that there's too much attention on Apple and I don't like to make things a complicated guessing game. Everyone is still paying Apple more attention than any other company out there. So I'd rather look where they're not looking... not play timing guessing games on a yet volatile security.
I guess what I am trying to say is that if you are waiting for it to fall further before you buy, I understand that (based on institutional selling). But that doesn't mean it is overpriced, it just means that the overselling is not finished yet. Even still, the little guy will have a hard time predicting when the institutions have finished punishing AAPL yet and could easily miss a ride.
I'm not waiting for it to do anything. I'm not looking at it. It's not the pricing trend, peaks or troughs that are telling me it's overpriced. It could be at a 40 year low and still be overpriced, or it could be at a 52 week high and still be underpriced
relative to its operating value, not relative to its historical which is totally meaningless... evidenced especially by the disclaimer that every broker, analyst and money manager puts very clearly in their fine print: "past performance is not an indicator of future returns"... referring to market performance.
Operating performance, on the other hand, is an indicator of present value. I think nothing of what the price might do later, because a company purchased well below their intrinsic value that continues to have strong operating results tends to rise in price later on, whether because speculators eventually catch on after I already got there, or because they're actually experiencing organic growth and the institutional and conservative long term investors give them an uptick proportional to the real growth in operating results.
We can sit here all day and speculate that Apple is underpriced because at some time in the future they might do this or they might do that, but no amount of that is going to appeal to me. In investing, lack of emotion and patience are the two biggest virtues.
If someone else believes otherwise, I'm more than content to let them.... their exuberance or confidence in their decision will not goad me into running along with them. I've found the level of analysis that suits my level of risk aversion and I am comfortable with the result.
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." - Benjamin Graham
Four important lessons here in Graham's one statement:
1.
thorough analysis - treat it like you would a merger/acquisition. take it seriously. it's your money.
2.
safety of principal - minimize risk exposure; every penny lost today is
(1+r)^nt future pennies lost.
3.
adequate returns - compounded annually produce better results than chasing after high returns.
4.
speculation ≠ investing - speculation is like going to the casino, except you're staring at meaningless charts all day and there are no martinis or women.
Notice Graham didn't say "exceptional returns".... I'm ok with that, because I'd rather be crawling along and compounding returns over the long haul, than running, tripping and skinning my knee every five hundred feet.