If a company’s P/E ratio is supposed to be indicative of its
growth prospects, then why is Netflix’s P/E ratio more than 4.5
times higher than Apple’s when Apple is growing its bottom line
more than twice as fast as Netflix is?
I think it’s psychological. Wall Street, collectively, can’t wrap its head around just how big Apple has gotten and how fast it continues to grow. Ten years ago Apple traded at $10 a share; five years ago $65. That’s the Apple Wall Street remembers, and thus today’s Apple at $400 seems like it’s had a really nice run to reflect its last five years of success. The stock is weighed down by old impressions of Apple as a smaller company with niche appeal.