Asymco: What is Apple’s realized P/E ratio?

“The Price/Earnings ratio is a very simple measure of the ‘value’ a company has. The Price is the current share price and the Earnings is usually the sum of the last 12 months’ earnings per share,” Horace Dediu writes for Asymco. “In other words it measures how many of the last year’s earnings are built into the share price. Put yet another way it’s the answer to the question ‘If earnings don’t change, how many years will I have to wait before I’m paid back for my share purchase with retained earnings?'”

“So a company with a P/E of 10 implies that if nothing changes, in 10 years a share owner would ‘earn’ back the price they paid for the share,” Dediu writes. “Any earnings after 10 years would be “profit” for the share owner.”

Dediu writes, “So with a company growing at 20% the “realized P/E” is 5. You realized the price of $100 in five years’ worth of earnings… Investing in Apple between 2006 to 2010 meant obtaining a payback period of less than 4.5 years, on average. In other words, regardless of what the trailing or forward P/Es getting quoted at the time, buyers actually paid for only about 4.5 years of earnings. In other words they actually bought Apple for a P/E of about 4.5.”

Much more in the full article – recommended – here.

[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]

13 Comments

  1. And this is how you know other companies with a higher P/E rating means it will take that many years to do the same. Having a LOW P/E is a sweeter opportunity any way you look at it. VERY low risk, VERY quick payback on investment. Plus NOW it is a dividend stock too, even better.

  2. 2006 is when I bought in to aapl.
    I understand the idea of earnings covering the initial investment. However apple does not give that money to the stockholders so that cash is not realized.
    Of course if I sold now my return would be around 700%. Not bad for 6 years.

  3. Which is why Amazon’s P/E ratio of 271 is absolutely insane.

    And their profit margins are about 1%.

    Anyone with Amazon stock should pay very close attention here.

    1. You do realize that Amazon shares will be at $300 before Apple reaches $750 a share, P/E be damned. You have Jeff Bezos’ guarantee. Those Kindle Paperwhites are already sold out, that’s how great they’re selling. You’ll never know exactly how many they’ve sold, but if Jeff says they sold a lot, you should believe him. All Amazon investors do.

      1. Especially when they have to start charging tax like the b/m stores do. They won’t be the only game in town much longer.

        Shipping and time spent waiting won’t be worth the 2-5 dollars someone save’s. Good luck Amazon and your investers. I recommend shorting-the-shit out of it the minute that happens and it doesn’t look like long now.

  4. It doesn’t matter what individual item makes a profit. It’s what the company does. Amazon is a company that took a long ride to their present position. They are stable, profitable, and here to stay.

    1. last quarter amazon made 7 million in net profit.
      apple made 8800 million. (not to mention apple’s got that 110 billion in the bank).

      bezos has already warned that amazon might make losses in the future until sales catch up with capital expenditures like warehouses and Kindle hardware costs…

      a P.E of 300 is crazy…

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