Valuation is interesting. Pundits always seem to present something confidently as “it’s overvalued/undervalued/fairly valued.” I used to be intimidated by how confident they seemed to be about stuff, and wondering what it was that I was doing wrong because I find valuation so difficult to do well. The answer seems to be that most of them don’t really know, but they do a good job of acting like they do.
In practice, valuation is always determined by three things that have to be estimated: 1) what you think short term earnings are likely to be, 2) what you think the long term rate of growth is (and possibly the rate of change in growth), and 3) what the appropriate discounting factor is.
Of these, perhaps item 1 is the easiest to guess, but each of the others is often no more methodical than licking your finger and trying to guess which way the wind is blowing. Change any one of those three assumptions, and your valuation ratios can go anywhere. Having a margin of safety can help a lot, and that’s really what it’s about… it’s having a margin for all the mistakes in one’s own analysis.
I’ve eventually come around to looking at earnings yields, dividend yields, and cash flow yields instead of price multiples for valuations. It’s still imperfect, but I find that they are better behavied in conditions where earnings are small.
There is a reason valuation pundits don’t usually qualify an investment as “reasonably decent” or “ok, given the lack of market opportunities.” These are things you say in research meetings, not to naive clients (sophisticated clients are fine) or the press.
I get the marketing pressure dynamic and why they act the way they do.
But as someone who knows how tricky it can be to evaluate this stuff, it feels a lot like listening to a used car salesman explain why a particular used car is such a terrific value (“just look at those chrome hubs!!!”)
On AAPL, I owned it a large position (10% in a ~20 position fund) and am trimming. It just seems really long in the tooth now after a multi-year massive expansion (especially relative to the market) and as mentioned above:
It is the top holding in 13f filings, I believe
Earnings and sales estimates are becoming continually more aggressive.
The loss of Jobs vision is no minor thing in the longer term. He made this company what it is today. The question is what is the duration of his legacy.
The cash on the balance sheet is a major reason for the reasonably attractive valuation (for the quality and growth). The cash doesn’t generate sh!t and earns nothing. We’ll see what dividend policy looks like going forward and the tenor of management on acquisitions. Right now it is a signal of lack of new ideas from management, unless they are pacing themselves. Or, maybe it’s a signal that management with large equity positions in AAPL stock what to keep the cash on the BS for themselves.