How many years does Apple have?

Apple [APPL]’s “P/E ratio is 13 while the EV/FCF [Enterprise Value to Free Cash Flow ratio] is 7.5,” Asymco reports.

“This means the investment horizon is nearly half of what P/E suggests. (The cash flow yield should give pause),” Asymco reports. “Put another way, the market suggests that Apple has 7 more years of current profitability and not 13. Note that the P/E ratio for the S&P 500 is above 19.”

Asymco writes, “As Apple’s deferrals are increasing investors should look again at what the company’s worth. We had similar confusion when the company was deferring most of its iPhone revenue.”

Much more in the full article here.


  1. They’ll never stop doing this. All of AAPL’s history has shown that it doesn’t behave according to any of their metrics or theories or ‘analysis’. Well, maybe on a particular day it does momentarily cross 12:00pm, but not with any predictable consistency.

    This article (like my post in response to it) is a complete waste of a valuable part of the reader’s lifespan.

    1. Everyone is missing the point of the article. Horace is not another stupid institutional analyst. He’s saying that the market is underestimating Apple even more than you might think.

      The lower the P/E the lower the market foresees your future profitability (hence why many investors look at P/E ratios to see if the stock is being under/overestimated). But free cash flow is a more accurate measure of profitability, and it appears the market has even less confidence in Apple’s future than we see via looking at P/E ratio.

    1. I keep hearing things like Wall Street doesn’t understand Apple. After all these years, how is that even possible? They can’t be that stupid. Apple is using unusual accounting methods but it’s nothing that can’t be explained to even a young student and be understood. I’m terrible with figures, but I can easily go to a dictionary to find out what deferral means in terms of holding money for a certain length of time. It’s not the first time Apple has used GAAP accounting. What is so hard for Wall Street to understand about Apple?

      I can understand them saying they don’t give a damn about Apple or they just don’t think they can make money fast enough from Apple, but saying they don’t understand Apple makes no sense at all.

      Does giving a company like Tesla a huge P/E make any sense? Does waiting for Amazon to turn any profits make any sense? Does Google being worth over a $1000 really make any sense? No. But investors can understand that?

      Apple is making plenty of revenue, relatively high profits and has a mountain of reserve cash. Is that also too difficult for investors to understand? How does a company making little money suddenly become nearly as valuable as a company making plenty of money. On Wall Street it seems to becoming the norm. There are far too many stocks with outrageous P/Es. That’s just bad business.

      You see what happened to Tesla today. C’mon, it should never have run up that high in the first place. I’m always suspicious of companies where the P/E isn’t even shown on Google Finance.

      1. You make a number of valid points. But you forget or ignore two of the most critical points.

        Wall Street types are not there to make money for YOU… They are there to make money for Themselves.. PERIOD. They will say and do whatever it takes to make that happen. Remember the Bank crashes. Yes the banks knew they were doing wrong. They just hoped they made their money BEFORE the crash.

        Two is that YES many so called investors out there are just that STUPID.!!! They want to make their million and retire. What ever the market says is good for them because they do not understand the formulas. Formulas that were developed for WALMART and SEARS and other companies 30 years ago when things did not change so fast.

        Different times means different thinking. And knowing that many people making money off of you, will lie cheat and steal if they can. Its sad, but very true.

        Just a thought.

  2. Saw the growth numbers in China this morning and said to my wife, “Well, THAT ought to tank the stock today.” And sure enough . . . .

    Gawd, but I am getting tired of this. Every piece of good sales/manufacturing news is automatically followed by an analyst’s downgrade of the stock. If it weren’t for the dividend, I’d be SO gone from this blatant manipulation of a fine equity.

    1. Two words: Don’t worry.

      Step away from the day-to-day stock price ups and downs. In the short term, a stock’s price is a popularity voting machine. But in the long term, the stock’s underlying value is what will drive it. Go outside and smell the fall air. Let the talking heads blather away on CNBC.

      The point is this: Apple continues to grow and generate cash. Its stock price is undervalued. As long as you can sit on your shares of Apple stock and reinvest your dividends, years from now, you will smile. Let the dividends compound by reinvesting them, and over time, that will reward you with many more shares of Apple stock. As time goes by, Apple’s stock price will grow, and with it, the value of your original share purchase along with the added shares of stock that were granted to you by reinvesting the dividends. That is a formula for generating wealth. All you need is time and patience.

      Wall $treet does not have patience. The big brokerage houses and hedge funds have to demonstrate immediate returns. They might own the expensive watches, but you, little investor, own the time. By being patient and waiting out their silly games, and sitting on your Apple stock shares (and reinvesting dividends along the way), you will win, and outwit any attempts they make at manipulating Apple’s stock price in the short term.

      Famed investor Peter Lynch (read his book “One up on Wall Street” – it’s fantastic) famously explained that a stock’s price will vary from its earnings value in the short term, but in the long term, they will correlate. That is fundamental to owning a stock of a company. Apple continues to grow, and generates cash, also known as free cash flow. As long as Apple continues to do this, the underlying value of the company’s stock will grow. That is what you want to watch. In the years ahead, that is what will make you money.

      So don’t worry what the analysts think. Don’t stress about a stock’s day-to-day price, ESPECIALLY during earnings season. An undeserved downgrade is an opportunity to buy a mis-priced stock at a bargain.

      Now, go outside and enjoy the crisp fall air. PS Deidu might be a wonk, but he’s right.

      1. Fine advice…but…Dediu is a wonk?? Really?
        If being totally unbiased, doing scrupulously researched articles and calling it consistently-right…makes you a wonk…then sign me up. 😀

  3. The vampire bat subspecies, otherwise known as the Financial/Investment Advisers/Bankers should be all be given a hugel dose of high fructose corn syrup, mercury, formaldehyde and fluoride made by their friends in big pharma.

  4. I’m not sure what this guy is talking about but I do know that a P/E ratio is NOT an indication of how many “more years of current profitability”. And a LOWER P/E ratio is an indication of a more valuable stock to an investor. Apple’s current P/E ratio of 13 compared to the S and P’s average ratio of 19 makes Apple stock MORE attractive to an investor than the average stock. (ratios not verified, I’m using his numbers).

    Now, having said all that, Apple is making about $38 billion a year in profits. That is REALLY hard to maintain, no matter what you are doing.

    I like Apple products and do not own any of their stock. I believe as a customer, Apple is doing what they said they are doing: making great products. Profits will follow. 38B per year or more, that’s another question. In the short run, with 147B in the bank they aren’t going anywhere. In terms of gross business: I wouldn’t be surprised in 5 years Apple sells twice as many Macs, Phones and tablets. All this coupled with Apple’s stock buy back designed to make the outstanding stock more valuable and their dividend makes Apple stock attractive to an informed investor. Warning: the stock price of over $500 per share induces risk to an ill informed investor that a $20 stock doesn’t have. Tried and true investment strategy: do your research and buy companies that you know about and like with both purchase price and sell price in mind at the start.

  5. Oh brother …

    I think we’ve heard this all before – same song, same dance, the accent is slightly different – that’s about it.

    In the meantime, while the rest of the economy was tanking aapl went from about $30/sh to over 700 and then back down to 450, and now seems to hold steady about 500-550 – But that doesn’t count for anything – of course.

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