Apple stock is historically expensive after the biggest year in a decade

Apple stock is expensive historically after the best year in the decade

On the last day of 2019, Apple (AAPL) stock shut off one year of explosive growth and another main metric reached a high at the historic level also. Trailing price-to-earnings (P/E), ratio progressively escalated this year along with its stock price. According to FactSet, Apple started the year with a previous P/E ratio just above thirteen, less than its five-year average of 16.2, before ending 2019 at 24.7, its peak point since 2010. The trailing ratio of P/E is the price per single share of a stock divided overall earnings per share during the last twelve months.

Investors usually use it as a shorthand metric to find how expensive a stock is; however it is not perfect, as it doesn’t account for debt and cash and based on previous performance else than future expectations. The forward-looking P/E of the company that measures price/share divided by projected earnings during the next twelve months is 21.8, that is also expensive in the history of the company. An increase in the P/E ratio of the company could mean that investors expect growth of earnings in the future, so they might keen to pay more now. Though, it might also be a sign of threat that the stock overvalued.

Apple’s Stellar year sent its P/E ratio soaring

Price-to-earnings ratio (last twelve months) since the beginning of 2019

Apple stock is historically expensive after the biggest year in a decade

Apple basically had a less ratio of P/E as compared to its mega-cap technology peers. When the P/E ratio of Apple was about ten in 2016, venture capitalist Marc Andreessen tweet that, since deleted, that stock of Apple trades like a steel mill on its way out of business. Whereas the present figure is remarkably high for Apple, still it’s under the average for the S&P 500 IT index, that consists of seventy companies, but excludes internet firms including Alphabet, Netflix, Amazon and Facebook. According to FactSet, the average ratio of P/E in that index is now twenty-six, above from twenty, at the start of the year.

Jeriel Ong, the analyst of Deutsche Bank, said that several factors drove up the P/E ratio of Apple this year, including a general market drift and bearish expectations about Apple earlier this year. Ong said that investors demonstrated iPhones as a continuously falling business but sentiment improved, and now, he expects growth year-over-year. Not only iPhone 11 did improvement about expectations, but investors also started to look ahead to the iPhone 5G 2020 cycle, that expected to be a super cycle. Wearable devices of Apple also performed well, he added.

2019 Closing P/E ratio of major tech giants

Back in 2012, Apple started to trade at a discount to the S&P 500 with the P/E multiple reducing to 10-12x at that point S&P 500 was 12-13x; thus the idea that it might now trade at a point 3-4x premium to the S&P 500 at 18.5x is exciting indeed. The P/E ratio of Apple still ranks among the lowest as compared with the other mega tech stocks. Amazon is closing out the with a P/E of 81.8, Facebook with 32.8, Microsoft with 29.7 and Alphabet, the Google-parent firm ending up with 28.7.

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