Wednesday, 29 February 2012

Has APPLE peaked?

With its share price exceeding US$540 up 4500% in 10 years, APPLE has joined a very exclusive club and presently is the most valuable commercial company in the world.

It has joined the Club of the few companies whose market value has at some point in time exceeded US$ 500 billion.   History shows that it is not only difficult to make it to the very restricted Club but it is even more difficult to stay there.  Apple is now worth more than Microsoft ( US$ 266 billion) and Google (US$ 159 billion) combined and you have to throw in Cisco ( US$ 109 billion) to get over Apple's current value.

Microsoft and Cisco were at one time worth more than US$ 500 million a piece but that was in the heady days of the tech bubble.   Microsoft in 2000 had exceeded US$ 600 billion which remains the record to beat.

ExxonMobil and General Electric are the other two ex-members of the elite Club. 

So what fate awaits Apple?  Will it like its predecessors find life difficult within the Club and retreat or has it more mileage to go?   In short has Apple peaked?

Despite its record valuation Apple is trading at a conservative 11 times price earnings compared to its expected 2012 earnings.   Most analysts remain bullish about Apple and still have a BUY or STRONG BUY rating.

Really it is a matter of judgement.   If you think that Apple can continue to innovate and turn out products which are a must buy through the compelling brand power even though they sell at a premium price compared to competitors, than Apple can keep soaring.    But if you think that this is a passing fad and eventually fundamentals will take over and consumers will no longer be willing to pay premium prices for the brand, than Apple's share price, along with its profitability, will come down as fast as it went up.

After all, unlike Google and Microsoft, Apple does not have the same monopolistic power which competitors cannot challenge over time.

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