Is Apple’s P/E Ratio Too High Or Too Low?

by Trefis Team
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Trefis explores whether Apple’s P/E Ratio Makes Sense in a detailed interactive dashboard, and finds that the technology giant’s current P/E Ratio might present an opportunity compared to the S&P 500. If you believe Apple can beat S&P 500’s expected revenue growth of about 7% in 2020, it is likely that Apple’s stock will gain, especially versus the S&P 500. Apple’s margins have been consistently higher than the S&P, and we discuss more below.

Also, Apple’s P/E Ratio looks reasonable compared to Google and Samsung. Apple’s lower P/E with respect to Google, and a higher one with respect to Samsung make sense, as discussed below.

Note: The P/E ratio shown here for each company is a forward P/E figure calculated by taking:

  • the average stock price for the last quarter of the company’s reported fiscal year, and
  • the actual or estimated EPS for the next fiscal year

Also, Apple’s FY ends September 30th, while the FY for Google and Samsung end December

Apple’s P/E ratio at about 16.1, is much higher than the low of 11.5 seen from 2016

  • Improvement in revenue growth with margins remaining relatively steady has helped. Moreover, Apple has benefited from higher valuations for the broader technology space in recent years.
  • The notable improvement in the P/E ratio for 2018 was due to strong Revenue Growth as well as an uptick in Net Income Margins for that year, as demonstrated in the charts to the right.

Apple vs. S&P 500: Higher 2020 Revenue Growth For Apple Could Present Opportunity

  • Apple’s P/E has been consistently lower than S&P 500, explained by Apple’s more volatile and lower revenue growth for the most part.
  • However, Apple’s margins are almost double the S&P 500’s, and this lends support to a higher multiple, especially if Apple shows higher revenue growth in 2020.

Apple vs. Samsung

  • Apple’s P/E Ratio is notably higher than Samsung’s
  • This is partly due to Samsung’s cyclical earnings that are caused by its exposure to the memory markets.
  • Samsung’s lower Revenue Growth and Margins also contribute to its lower P/E Ratio figure.

Apple vs. Google

  • Compared to Google, Apple’s P/E Ratio is much lower
  • This is expected given that Apple’s Revenue Growth has been consistently lower and more volatile than Google’s, even though margins are comparable.

For more detailed charts on P/E, Growth and Margins comparisons for Apple Versus S&P 500, Samsung and Google, view our interactive dashboard analysis.

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