Why Apple's lofty valuation is scary
Investors shouldn't lose their skepticism about this stock. Any hint of trouble could send shares tumbling.
I'm no way suggesting that Apple is anything but a legitimate enterprise. But the true believers in Apple are eerily reminiscent of Enron's fans back in the good old days. I should know because I was one of them.
Post continues below.
When I was at Bloomberg News in the 1990s, I was happy to oblige my editors' insatiable demand for Enron stories because the company was exciting. It was an upstart, and there is a natural inclination among reporters and other observers to root for the underdog.
We were hardly alone. I visited Enron's headquarters; met fraud mastermind Jeff Skilling, who was fairly personable; and wrote a laudatory feature about Enron's online business, which I later regretted. I wasn't the only journalist who drank the Enron Kool-Aid. Fortune Magazine dubbed Enron "America's most innovative company" for six years in a row.
Flash forward more than a decade, with investors showing the same zeal for Apple that they showed for Enron. Less than a month after the company issued "disappointing" quarterly results, the sock reached an all-time high, giving it an astounding valuation of more than $600 billion.
Jefferies & Co. analyst Peter Misek on Friday raised his Apple price target and told clients that the much-anticipated iTV and iPad Mini are now in production. Another analyst, FBR Capital Market's Craig Berger, described how the upcoming launch of the iPhone could be one of the most important in the company's history and could generate profits of as much as $50 a share.
Misek, Berger, PiperJaffray's Gene Munster and all the other Apple bulls out there may be underestimating Apple's growth prospects. They seem to think the Apple of tomorrow will be even more awesome than today's. That's a dangerous assumption. One lesson investors can draw from Enron is that true believers in any company often are proved wrong.
Apple, whose stock is up nearly 60% this year, is not on the verge of collapse. But even the slightest hint of trouble could send its shares tumbling.
Jonathan Berr does not own shares of any of the listed companies. Follow him on Twitter@jdberr.
More from Top Stocks
If Apple was selling at a ridiculous valuation, I would be scared, but by almost any valuation method, Apple is still cheap with a P/E of around 15 and a PEG ratio of .72. Apple also has a sqeaky clean balance sheet and is sitting on more cash than most countries.
All of this doesn't mean they are immune from making big mistakes in the future. It's almost inevitable that they will. And there are always upstart companies and technologies attempting to build a better mousetrap. Just look what happened to once dominant Kodak when digital photography replaced film. But for now, I'm sticking with Apple as my number one investment.
While the author of this article has complained year after year about AAPL. Most of us just got on the train and have rode the best stock out there. Sour grapes for him, HUGE $$$ for us.
The author does not know the definition of lofty valuation and he also is not very good at making comparisons.
Enron had an stupid high metrics, PE and PEG never once even had low values.
Apple has a stupid low PEG and a PE below 10 (ex-cash). All the other comments seem to forget that PE should be really ex-cash and AAPL has a mountain of it.
Apple will grow PROFITS an average of 15% the next 5 years...totalling $300Billion. Yes, that is with Apple not selling the most smartphones...they never wanted to be #1 in sales. They simply want to make the most profits and sell to those with money!!! Apple never cared about the uneducated or those who can not make enough to buy the top products. Those individuals can go and buy a low cost POS andriod product.
What do you want the PE to be of a company that makes those kind of profits??
LOL. Worst article ever written on msn.com HANDS DOWN
Any bit of bad news could send the shares tumbling? Really Jonathan??? What do you think the last earnings miss was you moron?! AAPL missed every earnings estimate out there.. not a SINGLE analyst's estimate was reached, yet the stock only tumbled 5% on this news, and trades at an all-time high just weeks later. And it STILL trades at a P/E ratio lower than half of the S&P 500.
I seriously cannot stand the garbage that this site puts out. Seriously, Jonathan, you need a new ****ing career you tool-bag loser.
MSFT must HATE the fact that AAPL has OWNED THEIR SOULS for the last decade and will continue to do so for decades to come through better innovation, better marketing and a MUCH, MUCH more creative tactical engineering team.
Disclaimer: I am LONG AAPL for life
Just sour grapes. I mean, how often are these so-called investments writers and gurus are proven wrong? Much moe than the regular Joe is proven wrong.
This guy just needed to write something negative to be a contrarian. I would like to see what has he recommended this year. I like to compare to my own buys and sells.
Like someone else said, how can we get a job writing for MSN? Because it does not take any common sense. There is nothing in common between Apple and Enron, except that they have gone up. You can make the same assumption withing those terms with hundreds, maybe thousands of companies.
Don't you guys love this jab he throws at Apple disguised as a compliment:
"and I am no way suggesting that Apple is anything but a legitimate enterprise."
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
These companies won't soar like other plays in the sector, but they make for great income sources.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.