An historically high PE ratio for Apple (AAPL) shares point to a possible correction, InvestorPlace contributor Will Healy surmises.
Although Apple remains an excellent long-term choice, investors should prepare for a pullback… I admit that in many ways, Apple does not get the respect it deserves. For one, it has tended not to attract the high multiples of its peers. Its average price-to-earnings (PE) ratio over the last five years comes in at 15.75. Now, its forward PE comes in at about 18.8.
However, seemingly everyone is bullish on Apple at the moment, and that gives me pause… Recall that Apple tends to pull back when the PE ratio approaches 20. Measuring by the current PE of more than 23.5, we have significantly surpassed that point. Also, at a forward PE of 18.8, we have moved close to that point from the perspective of future earnings. With 9.9% earnings growth expected for this year, I see little reason to believe we will see any long-term multiple expansion.
MacDailyNews Take: Apple’s PE ratio has been historically low compared to where it should be had analysts in general understood what they were looking at, instead of valuing it like a hardware company or based on iPhone unit sales or some other myopic metric.
This is not to say that Apple shares won’t pull back at some point as the market is, above all things, fickle, especially as it pertains to Apple.