All PEs mentioned here are TTM PEs.
I posted just prior to last earnings that I believe that AAPL is stuck inside an extremely narrow PE range. Prior to the 2008 crash, it was trading from 30 to 40 PE. During the crash it dipped to an all time low of 12, and since then rapidly rose to trade always between 18 to 22.8.
Basically, after each ER it spikes high then resets into the 18.x area, slowly climbing over 3 months into the 22.x range, then the cycle repeats. This ER was no exception, even with the news that S Jobs was leaving on medical grounds. The low we hit was $326 (a PE of 18.0 would have been $322.38).
So, where is the S Jobs discount in all of this? It’s worth noting that the last time he left on medical leave, it was just after the credit crunch crash. AAPL hit an all time low PE of 11.35, and after that the new PE range of 18-23 was established. There was no pop the day he came back as the date was predetermined.
We hit an all-time high of 360.00 and promptly pulled back. It’s worth noting that not only is 360.00 an eye-candy round number, it is also a PE of 20.1. Is this significant? Is the *new* S Jobs discount simply a compression of the range from 18-23 to 18-20? Or is this simply a pullback after hitting the .5 fib in PE terms? Are we still headed to a PE of 22 just before the next ER anyway? Are fibs in PE useful? Let’s examine.
18-22, range of 4. Thus:
.382 = PE of 19.528 = $349.75
.500 = PE of 20.000 = $358.20
.618 = PE of 20.472 = $366.65
And just for reference, PE of 22 is $394.02.
Is PEG useful? While “common wisdom” says that a PEG of 1.0 is fairly valued, for the last 5 years AAPL has had a PEG range of 0.74 to 0.17. The EPS growth has been so astounding that a PEG of 1.0 has never been reached. PEG 0.6-0.7 was during the 30-40 PE days, then S Jobs leaves PEG was 0.17, back to 0.6 and been sliding ever since. PEG now is 0.2x. Is this where the S Jobs discount is more obviously seen?
Lastly, I’ll note that AAPL is 70% owned by large institutions, and they do not actively trade. They buy and sell large blocks. Perhaps ultra conservative metrics like PE and PEG are how they decide to enter and exit? I’ll continue to keep an eye on this, especially as we near the next ER.
caruso2323 4:27 am on February 13, 2011 461 days ago Reply
Hola Nolavabo
caruso2323 5:23 am on February 13, 2011 461 days ago Reply
I suggest the following fine-tuning to your range modeling :
(1) Without a MAJOR market correction (Read as CRASH)
————————————————————–
A) The lower range corresponding to your P/E Should be Dynamic … The worst case scenario is that It could correspond to the MA(50) value which as you know is not fixed … But the more “realistic case” corresponds to the lower up-trend line …
So, when you were calling for a low of 322.XY on the 18 th of January 2011 (The day after SJ’s LA)
your call was pretty accurate as it corresponded to the MA(50) on that day as it read : 322.40 …
Whereas my call was for 326.66 which corresponded to the lower up-trend line on that day …
(B) The upper range corresponding to the P/E = 22 (394) is quite agreeable with my chart for the exception that I could only see 387 on the LATEST up-trend line . It also happened to suggest that we would top at 357 last week… But as we broke through 357 on two consecutive days … I interpreted that as a Buy Signal as we could be heading into the 365-370 range this coming week
based on the FORMER Up-Trend line leading to approx. your 394 … That symetrical triangle got busted, that was another sign of a break-out…
I believe that it is “safer” to buy closer to the MA(50) in order not to miss an opportunity… Same goes with selling slightly lower …
I still maintain that I am a newbie as far as charting is concerned… My technique relies on joining the closest high of a candle following a Quarterly Earning result … The line has recently trended-down and that may have factored SJ’s LA … Major events can modify the slope of these lines IMHO… More on that on your post about the past 3 weeks and the up-coming week
Cheers
(2) In case of a “Crash”
————————
Depending on its severity it could be any LOW value … Possibly as low as 225 !
My own theory about up-trend lines is that they are also somewhat dynamic as well … My former up-trend line suggested that we would top this week at 357
nolavabo 6:33 pm on February 13, 2011 461 days ago Reply
I find it interesting to see how the 18-22 PE range so closely coincides with other TA indicators such as the 50MA or various trendlines. This suggests to me that there is some merit in using the PE range, as there does some to be some significance to it. For example, is the “speed” at how fast AAPL is being allowed to rise being tied to the 50MA? I don’t know, but I will continue to watch it.
nolavabo 7:41 pm on February 13, 2011 461 days ago Reply
I’ve found the following post that is so close to what I was thinking about that I won’t bother going ahead with my own work. This shows the PE one week(ish) before ER, and then the new PE one week(ish) after earnings.
http://www.postsateventide.com/2011/01/apples-price-earnings-multiples-before.html
What I was interested in doing was to to work out the PE of the HIGH before ER, and the PE of the LOW after ER. However, this is close enough for my purposes.
It seems that my 18-22 PE range was wrong, and that it was closer to 19-24. That is a huge range. So far, post SJ on leave, the PE range 18.0x to 20.0x. I expect the top of the range to be strongly challenged and broken this week, so will continue updating.
caruso2323 5:16 pm on March 6, 2011 440 days ago Reply
Nolavabo,
If one was to stich Fq01-11 and FQ02-11 in the context of your P/E thesis of 18-22 with view to PREDICTING AAPL’s PPS movement , while taking into account the anticipated UNSEEN-BEFORE FQ02-X to match closely FQ01-X (with X=11) I would predict the following :
A) AAPL to soon set new ATH and hit the 370-375 range which will become initially the major resistance level Pre-FQ02-11 Earning …
B) AAPL to be driven back to 50 MA support by either a market correction (assuming a MILD correction) … or by a new wave of FUD driven by those dark forces of “evil” … Who are greedy and need that 35 gains in both directions… (Just $10 swings are no longer enough for them) . I have not yet attempted to project a “trended” 50 MA line yet… Will do so later… I will simply trend-it up
C) Post-Earning (at the LATEST) and IMMEDIATELY after earning the run-up to 387-394 may be followed by a pull-back to the 370-375 range acting this time as a support line that may coincide with the MA(20) value , before bouncing back
D) I have a feeling that $400 will a major psychological barrier that may prove very hard to beat … So I would anticipate a prolonged sideway action between end of April 2011 and end of August 2011 … It will take a beafed-up Earning FQ03-11 to slice through 400 … JMHO
caruso2323 5:24 pm on March 6, 2011 440 days ago Reply
Ups … Forgot the main data point for FQ02-11 … It is 6.0 …
What bugs me is that Analysts are manifesting their confidence in their “conservative” FQ02-11 (5.3 by memory) despite their conviction of 16M iPhones and some 5M iPads !… They felt re-assured by 16M iPhones thanks to the “over 100M iPhones sold” data point revealed by SJ on March 4, 2011… Simple extrapolations suggest a 6.0 eps as a minimum… Higher if it turns out to be 18M-20M hoping that they could ramp-up further the iP4 production …
Cheers
nolavabo 1:26 am on March 25, 2011 422 days ago Reply
The recent pullback had a lot of noise and chaos mixed in, with many people claiming AAPL would revisit the 200MA once the 50MA support line broke. I didn’t believe it myself, because of my PE channel theory that this thread is all about. To me, $322 was inviolable without the SPX going under 1000. This pullback was all about a reset, not to the 200MA, although many, many stocks did go back there. It was a reset to Jan 1 prices, a complete wipe-out of YTD price rises. This explains (IMO) why AAPL continued to fall even after the Dow, Naz and SPX hit their Jan 1 prices and proceeded to bounce. AAPL was seeing good support, and driving it all the way back to “zero” was hard work.
Recall that when Steve Jobs left, the sell-off bottomed out at a suspiciously round low of $326.00. I consider these round number bottoms to be institutional support. Well, looks like the same people are at it again. $326.32 was the recent bottom to the pullback. This is close enough to Jan 1 price, and the markets were already bouncing strongly at this point, $326.00 was a v strong psychological support. Close enough said the MMs and let it bounce.
2 days later, with more rumors and manipulation, another sell-off came out of nowhere on opex, only to be stopped by a concrete floor at $330.00. Every share offered near this price was picked up, meaning the bid never triggered. This continued into AH. This price surprised everyone as Max Pain was $340 that day. That’s 2 days, $4 apart. $2 day up as the support line. This is where my idea started forming. Lots of stocks and the indices had reset back to Jan 1. This was an ideal opportunity to see time “compressed”. I remember noticing in January we had a run of 5 weeks, where the price closed up a neat $10/wk for 5 wks running.
Monday gap up. Tuesday, gap up and consolidation, still up. Has the run-up to ER started? Has the run-up to Europe iPad2 launch started? Wednesday, surprise gap down. Caught me out, ran a LOT of stops, V shaped bottom. Support? $335.95, call it $336. 3 days, support line is $3 higher, Hmm, $2/day again. Today’s 9.40am LoD was $338.86. Wait a minute, $2/day = $10/wk all over again. Am I seeing the same handwriting as in January? Well, not same, just similar; this isn’t a price line, but a support line under which it doesn’t seem to fall. That means we don’t go under $340 tomorrow, and since it’s weekly opex it’ll be a great test of my theory.
Let’s throw some more tests at it. Draw the line to ER and we get $374 day of ER. Hmm, that number rings a bell. Why? Because of EPS. Right now TTM EPS = $17.91. Last year’s Q2 was $3.33, this year is let’s say $6. so add ($6-$3.33) to $17.91 = $20.58. Multiply by the 18 PE I keep talking about = $370.44, pretty damn close.
My thesis is that we never fall below 18 PE, once the new EPS is factored in. Obviously, price is not going flat sideways for 3 months and then jump $40 then go sideways, we are going to see jaggy, sawtooth uptrend lines. What I’m trying to do here is find the much smoother TRUE support lines, that slope gently from one ER to the next. TA uses 50MA and 200MA lines (see first paragraph) simply because they are easy one-click lines to draw. Algos definitely use them, you can feel their presence every time we go near them. I’m trying to find the better support line that is a clear buy signal every time we go near it. The support line that big institutional money uses to know when to add, based on fundamental value.
Anyway, just a theory based on a much too small sample size of one week. We should be able to test it over the next month or so.
nolavabo 1:57 am on March 25, 2011 422 days ago Reply
Fix. 4th paragraph. “3 days, support line is $3 higher, Hmm, $2/day again.” should be
3 days, support line is $6 higher, Hmm, $2/day again
nolavabo 2:11 am on March 25, 2011 422 days ago Reply
Goddammit, I missed a whole week. $2/day = $384 by ER, not $374. Still, the $2/day or $10/wk pattern keeps jumping out at me.
Either we redraw the line (and use $370 day after ER which is more correct), or this pattern can’t last until then. I’ve been looking at the last 5 run-ups into ER and found a similarity. It tends to sell off in the dying days of the month before, only to resume the sharp run-up about 2 weeks before ER.
Secondly, iPad 2 launch in the US was 5pm on a Friday. That Friday saw a $7 rise, numbers came in over weekend, it topped out $4 higher again and sold off.
If *both* these patterns holds true, and my theory of 18 PE as unshakable support holds true, we’ll see the following. Further rise tomorrow, making a $350 pin more likely than $340. Pop on Monday (I don’t know how high, let’s call it $354) followed by a $10 sell-off lasting into Friday 1st of April, bottoming out somewhere around $344. Then resuming the run-up on 4 April with support rising at $2/day.
Yes, I’m combining several stretched theories now. But I trade better if I have a basic plan to work off. This is mine for now.
caruso2323 3:28 pm on March 25, 2011 421 days ago Reply
Nolav,
The drop below the 50 day SMA removed all my confidence in correlating that parameter with the P/E = 18 base… So I did not bother doing my homework … : The The linear projection of the 50 day upward slope…
Here are my thoughts :
1) It is nearly impossible to develop a universal rule that would work 100% of the time … I think at BEST it could be with a probability of 85% to 90%
2) Allow me to correct you about the legendary 326 … It is really not so representative for trading purposes as only a TRICKLE got sold on these occasions … In my book, 228 is IT …
3) The Mother of all Support level is the 200 Day SMA … Which stands around 285 … AAPL never touched during the last 18 months (or more) … It came close but never kissed it …
4) We live in an increasingly challenging (read this as : Dangerous) economic environment due to the increasing scarcity of oil because of $ and politics, so … Fear and Greed plays in … Therefore Black Swans are bound to occur more frequently
5) Apple is the ENVY of the Capitalist world with a lot of room to grow… It is MOST vulnerable to market manipulation for the following reasons :
- It bears a disproportionate weight in the NASDAQ… So if there is an urge to manipulate the NASDAQ it is easier to do it by doing it through AAPL especially in days when volume is low, and later in the day when the buying weakens
- SJ’s health and the perpetual conviction that Apple cannot thrive beyond 2 years…
- The best winning game by Hedge Funds is Shorting and Covering, and then boosting the pps The more often they can do it and the more $ profits they make … They also benefit from Margin Call sellers who get squeezed harder and harder the more they get hit … Hedge Funds come out as winners in that sub Zero end game …
What I am trying to say is that is that establishing targets is relatively easy especially in the case of AAPL … The hardest part is setting floors …
Your theory of “Resetting” makes sense… It seems close to the retracement theory … But who is to say that rests happen only once in a year … And who is to say that January 2011 would be used as a reference point in time … It could be reset much earlier than January …
As for the action next week :
1) As pointed out by Conch there is an bullish aggressive MACD cross-over … I see initial resistance at 352.50 , and then 357
2) As you pointed out we appear to be pined for a 350 close to-day
3) We may get a data point on iPad 2 sales GLOBALLY … which may be a “Sell on the news” limiting the run-up with possibly a pull-back to 347 (50 Day Moving average acting as support)
I can’t see it breached unless some major catastrophe
4) Next week is the last week for Window dressing… Those who dumped may need to replenish before the end of April earnings …
I will post later about the linear extrapolation of the 50 Day moving average well into the end of April 2011 despite my new skepticism …
nolavabo 3:09 pm on April 20, 2011 395 days ago Reply
Sorry, guys, been hellishly busy and never found the time to write down what’s in my head about this.
Andy Zaky touches on the most important point, namely the post-ER P/E. His post can be found here.
http://tech.fortune.cnn.com/2011/04/19/why-apple-shares-are-dirt-cheap/
So, I think the price action in AAPL has confirmed (for me anyway) that it is not the true calendar Q that matters, but the ER to ER dates that are the real Q’s dates. If you see my above “concrete floor” based on 18 P/E for “this”Q, it was $322.38. Yes, it was broken, but only for 80 minutes and only by $2. I consider that a “false break” that confirms more than negates.
The big question now is this – does this 18 PE floor hold once earnings are reported? The floor has held unviolated since AAPL about $100, after it started its massive comback from the Credit Crunch end-of-the-world $78 lows. If so, AAPL would need to fly up to $374-$388 (depending on whose EPS number you use) and never fall below it again. I don’t see this happening. Call it the Law of Large Numbers, call it the Steve Jobs discount, but it is obvious to me that the Street is never going to give AAPL a fair PEG again.
The other most important observation is that we never went over 20.6 PE in Q1.
I will brutally squash down my fuller argument into a briefer one as I am short on time. I expect that we will create a new PE range now, and that *this* new PE range will be the Steve Jobs is going away discount. I expect a 17 to 20.5 PE range for this Q and indeed the rest of the year. Once you have the real EPS numbers, you can plug the numbers in and work off those.