“In the wake of Twitter’s IPO, the word frothy is getting tossed around a lot,” Kevin Kelleher writes for TIME. “It’s what you say when you don’t want to be alarmist about another dot-com bubble, but you still see a classic sign of a market gone loopy: a disconnect between what a company is actually doing and what investors, in valuing the company in the open market, think the company is doing.”
“Twitter’s $25 billion valuation is based less on the company today than on a company investors expect to exist in three or four years. The high valuations of Pinterest, Uber and others rely on the same hope,” Kelleher writes. “What’s less acknowledged these days is that such a disconnect between reason and rationality – between the stock and the company – is happening with old, big tech giants too. And nowhere more so than with Apple.”
“Apple the company is doing about as well as ever has,” Kelleher writes. “Apple the stock isn’t doing quite as well. Over the past year, it’s fallen 11%, even while the Nasdaq Composite Index has risen 29%. And it’s down 26% from its record high of $705 in September 2012. It’s trading at 12.9 times its recent annual earnings and 11.7 times its estimated earnings this year. The S&P 500′s average historical PE ratio is 19.4. Apple is such a well-known company that its stock performance reflects on its consumer brand. And so disappointment in its income statement ends up bleeding into the company’s public image.”
Read more in the full article here.