I've seen some discussion about whether or not Apples stellar earnings performance has been "built in" to the price. And of course many point to price to earnings ratio that is slightly higher than its peers.
This debate should really come down to one simple question. What is your opinion about the *future* of Apple? The P/E of a stock is simply the market's opinion of the outlook for the company.
Let's take a look at some facts.
1: Some analysts "warned" that new competition might challenge their staple product, the iphone. Despite this, Apple sold more than 7X the amount of iphones than in the same quarter last year.
2: Apple's earnings jumped 15% during a recession.
3: One trick wonder? While the PC market has declined 3-5% sales on Macintosh computers has jumped 4%. Apple growing computer market share is far more significant than, say, if Dell or Gateway does the same. Countless computer manufacturers offer the same product (Windows) in a different package. As users convert to Mac, nobody else offers the same operating system.
4: Apple simultaneously cut prices and *increased* gross margin.
5: The leadership at Apple knows their market well and continues to innovate and adapt to suit the times. From the iPod to the iPhone Apple has had the tech world chasing its heels. Who knows what will come next.
Based on a number of facts my speculative opinion is that Apple will continue to come up with new products and improve existing ones to outpace the market. I also think Mac computers has now become a sleeping giant that will awaken in a couple of years.
So is Apple's extremely successful quarter already built into the stock price? Is it over or under valued? That all depends on your opinion of Apple's future. Personally I think Apple is an exceptional company with an amazingly bright future. Whatever your personal opinion buy, sell or hold accordingly.
AAPL is the most profitable, best managed, healthiest, most stable, and most innovative company in S&P500. It just keep performing and performing regardless of the global economy. Owning the best company cost more. I think it deserves a higher PE. It will be trading at $300 by year end. No question about it.