Apple, with a 165 P/E a decade ago, made a 6,000 percent rally
Last week’s Federal Reserve report on stretched valuations of growth stocks highlighted the fact that a number of the highest P/E ratio companies, like Apple, have by much outperformed in indices.
Last week, the Fed gave one more example of how it can keep investors in growth stocks vigilant. Comments were released on the stretched valuations of some shares. Less than a decade ago, Apple had a P/E ratio of 165.Being the largest company worldwide, Apple (AAPL) has a ratio higher than almost all US stocks indeed. A single share makes an exception among all companies listed in the Nasdaq Biotech Index, whereas in the Nasdaq 100 two companies have a higher ratio.
To paint a fair picture, it should be noted that in both indices, unprofitable companies were not included. However, the trend can be clearly seen. Apple’s stock development following the climax reached in September 2003, with its high P/E, is easy to guess. More precisely in terms of data, it rallied by a hefty 6,000 percent.
Today’s market does not offer all growth stock investors the chance of investing in companies like AAPL. But to shed light on the other aspects of the market in the recent past, it helps to give more data. On 21 July 2004, the second highest P/E holder in the Nasdaq 100 was Comcast Corporation, with a ratio of 186, preceded by the highest value holder, Comverse Technology Inc., which later went on to be acquired.
Since 2004, Comcast has marked some 190 percent increase, after losing 63 percent of its value in the 2007-2009 period. There were also pretty low valuations, like Yahoo! Inc., for example, which only made an 18 percent increase for the decade; Juniper Networks Inc. had an even lower rise, with 6.4 percent; finally, there was a massive plunge of over 50 percent for BlackBerry Ltd.
But it was still a good trade to buy the stocks at the top of the Nasdaq 100 list, with the highest values, a decade ago. Naturally, unprofitable companies are not factored in. Nowadays, Amazon can boast with an over 700 percent increase, and Biogen Idec Inc. follows with a more modest, and yet massive increase of around 450 percent.
With the exception of Apple and of the two companies acquired a decade ago, tracing the development of the stocks with the top ten P/E ratios then, shows that they have had an average increase of 185 percent. The Nasdaq 100 index itself, has grown with 184 percent, and the Standard and Poor’s 500 – with 80 percent.
When Apple releases its earnings report later today, it cannot be expected the former to demonstrate the type of growth that shot it up by 6,000 percent to make it the largest company worldwide in terms of market value. That can give food for thought for the biggest stocks that can be expected a decade later, in 2024, on the basis of the present charts.
