Apple’s P/E Ratio

Matt Richman:

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.

★ Tuesday, 26 July 2011