Apple Inc. (NASDAQ: AAPL) just announced earnings -- up 67% -- that blew through estimates, according to the Wall Street Journal (subscription required).
Last week I wondered whether -- despite a gain in PC market share -- Apple might be over-valued. But that was assuming its earnings would grow 19% in 2008. Yet if Apple could continue its current pace of 67% earnings growth, it would be trading at a Price/Earnings to Growth (PEG) ratio of 0.73 -- which is significantly cheaper than the 2.6 PEG it would have assuming it grows 19%.
So why did Apple do so well? In its first full quarter of iPhone sales, Apple posted earnings of $904 million, or $1.01 a share, compared with $546 million, or 62 cents a share, a year ago. Revenue reached $6.22 billion, compared with $4.84 billion a year earlier and 9% more than Apple's own forecast of about $5.7 billion.
Apple is up 5.8% after-hours so there must be some aggressive short covering going on. Maybe there are even some buyers out there thinking Apple is cheap at a P/E of 49.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Apple.
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Reader Comments (Page 1 of 1)
10-22-2007 @ 7:21PM
Mr. Marescaux said...
I had a feeling that Apple would post huge numbers and a resulting Google-like euphoria would result. Looks like all the hype surrounding the iPhone proved to be true, even after slashing its price. Love them or hate them, you have to admit that Apple does a great job of selling its products. They either know what you want and make it, or they make it and tell you that you want/need it. The fact that their Directors have experience in selling everything from vacations to movies to jeans should tell you something http://www.newsvisual.com/newsvisual/2007/10/could-apple-pul.html . The holidays can't get here soon enough for Apple.
10-23-2007 @ 2:41PM
JohnK said...
It is really hard to forecast AAPL. It is not like they are selling a fixed set of products for which you can estimate future sales. Apple has the ability to spin out new products (like the iPhone) and they have the size and muscle to make them available everywhere at once. In addition they have no debt, over 10B$ in cash, they have finished the transition away from several legacy products, they own their own core technology. They may stumble but they are extremely well positioned for explosive growth. If Apple just sells more iPods, iPhones and computers we can expect significant growth. If they produce a new product like the iPhone each year going forward then what?
11-05-2007 @ 12:37PM
Brian Cawley said...
Not surprising that Apple are doing so well. We have just replaced my wifes ailing PC (that was taking time to keep fixing) with our first iMac. The iMac runs all the time, rarely gives a problem. My wife is very happy. Computer was more expensive but I believe the cost of ownership will be cheaper than owning a PC.
My own PC needs firewall, anti-virus, anti-spyware, etc. software that slows it down and causes it to crash at least once/day.
Apple's operating system and basic useful software make it a winner. Apple's engineering appears to be superior.
Together with the marketing know-how that works with engineering and their supplier base, Apple has a recipe for success that is a joy to behold.
A company that has good innovative products, we will watch it with interest.