[elliotanderson]

Apple's share price has not had any correlation to its fundamentals for the last few years. If you were to compare its P/E ratio to that of other tech companies out there (Amazon's is 3628) it would technically be undervalued even at its current price.

That said, most of the volatility comes from all the prop trading firms trying to turn a profit. AAPL is considered a bullish stock amongst fund managers and is often used to hedge against other riskier positions in the market. Often times big dips in Apples stock can be attributed to profit taking (especially around this time as we finish up for the year and get nearer to the end of an American financial quarter – gotta look good on the books to the get Christmas bonus) and margin calls on bad trading days. You’ll notice a dip in the afternoon of any bad trading day as prop firms start getting margin calls on their failing positions and have to sell to cover their losses.

[tptacek]

But it's also not reasonable to compare Apple's P/E with Amazon's. There's more to valuation that industry; Apple and Amazon are both "tech companies", but they have wildly differing business models. In particular, Amazon is aggressively buying market share and the market is financing that. The market says Amazon could radically more lucrative in the future, in a way Apple won't (it's already absurdly profitable).

[snowwrestler]

I understand this point of view, but it doesn't seem likely to me that the expected future profits of Amazon can be realistically expected to be 283x the expected future profits of Apple. I just don't see any way to support such a big multiplier.

[tptacek]

Without getting into the specifics, we can think of the P/E both as a measure of how speculative the future earnings are (Amazon, which is consistently and deliberately barely profitable, reflects little of its upside in its earnings; Apple, on the other hand, is milking its cash cows for all they're worth); another way to think about it is, Amazon is plowing more of their earnings back into efforts to buy market share, where Apple is extracting them into cash reserves right now.

Remember, Apple's market cap is still much larger than that of Amazon. Even though Amazon has what over the long term might end up being a much more lucrative model, in that it is poised to more or less control retail and retail logistics everywhere.

They're both great companies, but the P/E of each company tells a different story about their business (neither story is bad).

[snowwrestler]

Sorry, I misspoke above. Rather than edit I'll just correct myself here.

What I should have said is: The expected future profits of Amazon would have to be 283x their own current profit (sorry, not Apple's profit), to arrive at a P/E similar to Apple's now. (In other words, to match Apple's strategy of extracting max profits to cash.)

That is a smaller number than I implied above, but it would still require Amazon at some point in the future to make a profit of $178 billion in 2012 dollars--more than 4x Apple's current profits.

To achieve that with, for example, the profit margin of Walmart (the current dominant retailer), they would need to do about $5 trillion in sales, again in 2012 dollars--about one third of U.S. GDP, or 1/14 of world GDP.

If we spot them Apple's current profit margin, sales would still need to be about $670 billion--about $180 billion over Walmart's current sales (at much higher product prices).

So while I totally understand the idea that Amazon is reinvesting for future growth, I just don't think future growth could ever be high enough to justify the stock price now.

[rorrr]

And they are right. Amazon is the next Walmart, but on a global scale.

Apple is just a high-end tablet maker, and they are getting hit very heavily by their competition. You can't ride forever on the fanboy wave and the brand wave. Fanboys will realize the competition is better, cooler, cheaper, and Apple brand is already toxic, it's not cool anymore.

[pstuart]

Are you serious? Apple defines the market.

[josteink]

On HN and in San Fransisco bay, I'm sure. The rest of the world is choosing Android, as seen in all sales-figures reported this year.

Needless to say, "the rest of the world" is much bigger than San Francisco. Apple has already peaked.

[tptacek]

YES DEFINITELY LETS HAVE THIS "DEBATE"

I just wanted to make a point about comparing P/E ratios. You know, from my Macbook.

[rorrr]

Not anymore. Andoid phones and tablets are way ahead of what Apple is offering, spec-wise. Android OS is even further ahead of iOS, which has been a stale grid of icons for what, almost a decade now.

I agree that Apple used to be on the cutting edge of technology and innovation. Now they are desperately trying to catch up with the competition, and fail every time. They still do have good sales, but that won't last.

[wiredfool]

The market is still irrational. Today, it's downward. I'm still solvent. (thankfully).