Another boring money post

[Partial]

You're really in love with PEG ratio.

94% of stocks follow it historically I've read. Rightfully so, it's an incredible indicator.

I'll tell you why I'm not impressed. Predictions for Apple's growth like any company's growth are affected by investor hype. With Apple and its cult-like investors the hype is insane enough to make these growth predictions wronger than usual. We're also talking about an established company not some midget, you'd have to believe that Apple is going to take over the world to think it still has obscene growth potential.

The majority of AAPL is not held by individuals. Investment houses are not fanboys. They're investing to make money. People take their allegiances out of the equation when investing anyway. You're misinformed about this.

Look at what the analysts are predicting. They had 100% growth in the past year for the most part. They'll have huge growth next year. And more the next. This isn't just one analyst. This is pretty much every analyst. Go on yahoo finance. I think they've reported that 50 out of 50 investment groups call it a Strong Buy. I haven't checked the page in a few days so it may have changed.

Well even back in the Jaunty days, apt-get could be handled by the synaptic package manager but these days its being slowly changed into "Ubuntu software center" which is essentially a knockoff of the apple app store filled with open source binaries and even some commercial ones. They have a completely new UI packaged with 11.04 instead of classic gnome. Dunno if you'd like it or not but Its certainly evolving much much faster than any other major OS. If it hasn't caught up yet then it will soon and the consumer's choice will boil down to "pay" or "free." The cloud trends that have us doing everything through a browser anyways benefit no OS more than Ubuntu.

I've seen the new UI on a netbook and it looks nice.

Check out the Win8 Metro UI preview below. So sexy.
http://www.engadget.com/2011/09/13/w...ds-on-preview/

[3irty1]

The majority of AAPL is not held by individuals. Investment houses are not fanboys. They're investing to make money. People take their allegiances out of the equation when investing anyway. You're misinformed about this.

Look at what the analysts are predicting. They had 100% growth in the past year for the most part. They'll have huge growth next year. And more the next. This isn't just one analyst. This is pretty much every analyst. Go on yahoo finance. I think they've reported that 50 out of 50 investment groups call it a strong buy. I haven't checked the page in a few days so it may have changed.

Of course not after the decade they've had Apple is a part of a bazillion funds I'm sure. It doesn't take a majority of the holders to be individuals to throw wrenches into estimates or spiral away from its intrinsic value. You are living proof as a fanboy who owns stock. I know two more, one with over a million dollars worth. The effect is there in the form of not just personal biases but also media hype. Who do you think those analysts are for? Human behavior and social movements have a monstrous impact on the market, otherwise we could all just follow the numbers and we'd all get rich.

[retailguy]

You're really in love with PEG ratio.

94% of stocks follow it historically I've read. Rightfully so, it's an incredible indicator.

Incredible indicator?

Well, not from my perpective. It "can" be a good tool, but like anything else it can be abused.

Let's talk about it. My biggest issue with it is that it is a "predictor" of future events and none of those are exceptionally reliable. No one (except Jesus) can predict the future and he ain't into stocks so he doesn't weigh in.

The P/E ratio is a critical component of the calculation of the PEG. The PEG can only begin to be accurate if the P/E is accurate. Plenty of things can make it inaccurate. Some are perfectly honest, some are NOT. Just like the rest of the market (and life too).

So why can the P/E be unreliable? The P/E is determined at a given point by the market value of a company or its shares. Already built into this market price are the future expectations of a companies growth. Future growth affects share price, therefore future growth affects P/E, which affects PEG.

Next, let's look at earnings. Earnings are an accounting figure that can include non cash estimates. Earnings have to be prepared in accordance with GAAP, on the surface you might think they're all identical. But they're not. Companies have much latitude within GAAP to manipulate earnings depending on whether they have an aggressive or conservative approach to their business.

Other companies have massive underfunded pension and healthcare obligations. Guess what? Those are not reflected on their income statements and are therefore left out of the P/E ratio. That could be a major factor in the accuracy of the PEG, couldn't it? Leaving out debt would increase the P/E ratio and make the company look much more attractive than it really is....

Then there are always "one time events". For example, if you own a company that sells one of its subsidiaries for more than it's book value, this would be recorded as an increase in net earnings. This would alter the accuracy and the usability of the P/E ratio, and make PEG useless as a measure of value.

Honestly, I'm just getting started here. I haven't even really talked about a company that wanted to manipulate it's numbers. Guess how Madoff made his scheme attractive? Yep, the P/E ratio. In his case, through all kinds of markets, it stayed the same, or very similar.

I like PEG, it's a good tool. ONE tool. Free cash flow is another, and it's much harder to fake longer term.

Partial, you know enough to be dangerous. If everything falls just right, you'll make money. But if it doesn't, you'll lose your shirt, just like the Enron employees who had their retirement in stock and options.

You ridiculed me earlier for "comparing" corruption with recession. But you missed the bigger picture. To the investor, sometimes corruption can look like recession, or things other than recession. You don't know until it's too late.

I could have substituted the list I gave you to include AIG, Countrywide, GM, Chrysler, Chase, Bank of America. It wouldn't have made any difference the outcome is the SAME.

Thousands upon thousands of investors lost everything in these companies. Don't be stupid enough to be the next one. Blindly following PEG, or any other ratio for that matter, will lead you down a dark alley so fast you won't know what hit you, other than your money is now gone forever.

[Patler]

Incredible indicator?

Well, not from my perpective. It "can" be a good tool, but like anything else it can be abused.

Let's talk about it. My biggest issue with it is that it is a "predictor" of future events and none of those are exceptionally reliable. No one (except Jesus) can predict the future and he ain't into stocks so he doesn't weigh in.

The P/E ratio is a critical component of the calculation of the PEG. The PEG can only begin to be accurate if the P/E is accurate. Plenty of things can make it inaccurate. Some are perfectly honest, some are NOT. Just like the rest of the market (and life too).

So why can the P/E be unreliable?

(redacted for brevity)

I agree completely, and the sad part is that as unreliable as P/E is for the reasons you gave, it is the most reliable component of PEG. The "G" part is predicted growth (either over 3 or 5 years) and historically the estimates aren't close.

A study was done by the Penn State business school covering all published estimates from Wall Street analysts over a 20 year period. Their average annual growth from their 5 year estimates was 14.9% growth. Actual growth for those companies was 9.1% That was based on a 20 year comprehensive study. They weren't much more accurate on the shorter term one year estimates. Their average annual growth from 1 year predictions was 13.8% and the actual growth was 9.8%

Their estimates miss by 50%.

PEG is like any other predictive tool, it should be used in conjunction with other factors and tools to look for consistency or inconsistency in the results. It shouldn't be relied on too heavily in and of itself.

[Patler]

The analysts "could be wrong"? Do you realize that good analysts and investing systems ARE wrong about 45% of the time? They make their money on the 10% differential, being right 55% of the time and wrong 45% of the time. That, and limiting the losses when they are wrong.

There is a saying among analysts that, in the long term, the market is never wrong. What they mean is that the market determines the share price, regardless of what analysts think the price should be. So the market is never wrong, but analysts often are wrong.

So far, over the last two years or so, AAPL has climbed steadily, and that is a good thing. Momentum is a good thing. But, AAPL has missed the analysts share price targets continually. In spite of significant "beats" on earning estimates, the stock has moved upward more slowly than analysts have predicted, and that is a bad thing, because analysts' share price estimates are based on their earnings estimates. While AAPL has exceeding the analysts earnings estimates significantly, the share price has not hit the analysts targets.

In other words, the market has been less impressed with AAPL's performance than the analysts have been. That makes AAPL a stock that should be watched closely. If they ever barely beat the consensus earnings estimates, or miss it, the stock could top out. In short, the market may determine the "correct" P/E for AAPL to be far different than analysts think it should be.

The outlandish sales estimates like what you quoted give me concern as an investor. The more aggressive the analysts become in their sales estimates, the more likely it will be that AAPL will miss one. A miss from a company that has routinely beaten estimates by a lot will stop the share price momentum dead in its tracks.

I agree completely, and the sad part is that as unreliable as P/E is for the reasons you gave, it is the most reliable component of PEG. The "G" part is predicted growth (either over 3 or 5 years) and historically the estimates aren't close.

A study was done by the Penn State business school covering all published estimates from Wall Street analysts over a 20 year period. Their average annual growth from their 5 year estimates was 14.9% growth. Actual growth for those companies was 9.1% That was based on a 20 year comprehensive study. They weren't much more accurate on the shorter term one year estimates. Their average annual growth from 1 year predictions was 13.8% and the actual growth was 9.8%

Their estimates miss by 50%.

PEG is like any other predictive tool, it should be used in conjunction with other factors and tools to look for consistency or inconsistency in the results. It shouldn't be relied on too heavily in and of itself.

Little did I realize that when I said AAPL would eventually have a quarterly "miss" that it would be the very next one.