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Is Apple really worth 300 years of beer consumption in Ireland?

Sigma Investment Counselors

March 29, 2012

Apple’s (AAPL) stock traded at a new high of $621.45 on 3/27.  This stock price puts the market capitalization (total shares outstanding times the price of the shares) of AAPL at a staggering $575 billion.  It’s the largest company in the S&P 500 index, and according to this Wall Street Journal article, about one third of all US stock mutual funds own Apple’s stock.  This near-ubiquity could be signs of a herd mentality in all the hullabaloo.

 

After doing some additional research for this blog, I discovered another blog titled “Things Apple is Worth More Than”.  Some of the interesting items include the retail sales of electricity in the United States, the global coffee industry, and all the gold at the New York Federal Reserve!  Is AAPL really worth 300 years of beer consumption in Ireland?

 

Benjamin Graham (the man who wrote the bible on investing) was quoted as saying you can get into more trouble with a good idea than a bad idea, because you forget that a good idea has limits.  AAPLs parabolic growth causes some concern.  Any hint of a slowdown can cause a high flying stock to quickly take a nosedive.  Google was a prime example of this in 2008, after hitting a high of $747 a share, concerns over a slowing growth rate drove the share price down to $249.  It has subsequently taken three years to climb back up to $652 today.

 

AAPL’s growth prospects, product mix, innovation and execution appear very healthy.  From a cash flow and earnings standpoint, they are operating on all cylinders.  Like most of the world, I love my Apple products and am counting down the days until I can upgrade to the new iPhone.  The stock could continue its rise for some time.  But what valuation is too high?  $1000 a share?   $2000 a share?  $5,000 a share?

 

Your thoughts are welcome.

 

Marisa A. Lenhard, CFA, CFP®

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