In the stock world, true love is measured by expanding multiples.
You've got to take it farther than Elizabeth Barrett Browning ever did in our investing world. Her declaration:
How do I love thee? Let me count the ways.Needs to be broadened. Beyond depth, breadth and height. Beyond just three dimensions. Investors in love count multiples — big, juicy P/E multiples. That's the testament to their love. All else is a ruse, plain and simple.
I love thee to the depth and breadth and height.
And, by my elementary school math, Apple's still at a tepid 16 P/E, far short of a declaration of love. That's more on the line of passable than passion. If the market craves a stock, it's got to value it dearly.
As I've said before: Multiple expansion is the market's equivalent of passion.
If you want to see devotion, you've got to look elsewhere.
For instance, investors have a starry-eyed infatuation with 133 P/E-high Amazon (AMZN). Or with Salesforce.com (CRM), a head-over-heals romance in a company with no earnings and a $20 billion market cap. How about LinkedIn's (LNKD) 792 P/E crush?
In terms of valuation, investors have treated Apple more with disdain than affection.
Literally, the market had to be brought kicking and screaming to Apple. It had to be coaxed, beguiled, and coerced into the stock despite mind-boggling revenue and earnings growth. Apple shares were powered by overwhelming earnings that forced PPS up even as multiples tumbled. Rarely have investors valued a high-quality growth company so cheaply.
This is just the start of a romance. A good beginning. But a very young, very early found love.
How else can you describe a 12.7 P/E in January right after its last blow-out earnings report? Insulting? A travesty? Now that we're at 16 pushing 17, Apple's feeling a little respectful heat.
So where do we go from here?
A little lust, a glance, and Apple takes out a P/E of 18. Some wine and candles and Apple crosses 19. And, with just the right chemistry, Apple knows desire at a 20 multiple. Now that's love. Loved the right way, a 20 multiple takes Apple to $700 this spring. After all, spring breeds love. Why shouldn't it for Apple?
Who says investing can't be romantic?