“Thomson Reuters reported that excluding Apple, the entire S&P 500 grew profits at a rate of 4.4%,” Horace Dediu writes for Asymco. “Including Apple the figure is 6.4%.”
“Apple therefore accounted for nearly 8% of the S&P 500 in the last quarter,” Dediu writes. “A year earlier Apple was a mere 6%.”
Dediu writes, “It should therefore be obvious why Apple’s P/E ratio is 16.1 while the S&P 499 P/E ratio is 19.8.”
Full article here.
[Thanks to MacDailyNews Reader “Dan K.” for the heads up.]
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oh i love the smell of sarcasm in the morning!
“should therefore be obvious why Apple’s P/E ratio is 16.1 while the S&P 499 P/E 19.8”
I dont get this.. Unless it is the sarcasm mentioned above !?
… stands for. Price compared to Earnings. A lower Price for a given amount of Earnings means the company is making more profit given the cost of its stock. Just guessing, this would be the “trailing P/E”, a known, vs the “leading P/E”, which is an estimate.
You have to pay $16.10 for Apple stock that will earn $1.
You have to pay $19.80 for an “average” S&P stock that will earn $1.
Profit. Value. Check out Amazon’s P/E. The only cause for sarcasm might be that something like this is “obvious”. It isn’t.
Horace is being sarcastic. But why whine about it, as ‘Glen’ says in the comments:
A lower PE is *good* thing for investors. It means you get a larger portion of earnings for your investment. One way another, those returns will be delivered to you over the long term, mostly by capital appreciation (even if PE remains static), unless the company fails to re-invest its earnings well; and that is no less likely with a high PE.
The usual downside to a low PE is the implication that a company’s prospects aren’t as good. If they are, as I think they are in Apple’s case, then you have already beaten the market.
Sure, it would be nice if the PE would go up after you buy, but only if you expect to take advantage of it by selling. If you expect to continue to buy, then the low PE is a double benefit.