[rsdfvn1099]

I understand this is an "intro-to-equities" case but doesn't this completely ignore dividends and buybacks?

I'm not an expert at reading financial statements but it seems to me Apple could easily double their dividends and still be very profitable relative to other companies.

Surely moves like that should have some effect on stock price meaning there are more possibilities than "grow gross profits" or "worth less"

[Veserv]

No. PE (price to earnings ratio) is the ratio of price to profit. Assuming they do not grow, their profit is stable at the latest reported value indefinitely, and that their accounted profit is a good approximation of distributable cash (that is the approximate goal of how profit is to be accounted), then the inverse of the PE is the maximum return on investment at this instant. That is all of their earnings paid out as returns.

Apple has a PE of ~34, so that is ~3%. 30 year treasury bonds are averaging ~4% right now. So yeah, Apple would be a abysmal long term investment if you assume they do not continue to grow. Anything with a PE over 25 at this time must grow to be worth the investment.

[refulgentis]

This is a good Q, I didn't know the view in the other reply, at least specifically. In general I know profit : stock price is necessary for calculating rate of return.

my dumber answer is "only if dividends and buybacks exceed profit sustainably", which is an oxymoron eschewing extreme circumstances (taking on debt at that you won't pay back, or being offered debt at 0% interest despite the fact you're giving it away)

There's lots from there (ex. couldn't we pull that off? Bank doesn't know we're liquidating if we don't tell them) -- in general the abstraction finance uses is "is the rate of return higher than bonds?", which of course is true in the short run in this extreme of a scenario, but unlikely in the long run