In my view, Farhad Manjoo's articles in the Slate mMagazine have been reliable sources of information on technology. His latest piece involves the analysis on Apple and specifically its stock performance over time. bBased on the numbers in this article, the Apple stock has risen by more than 32% since the death of Steve Jobs some months ago. The author identifies clear drivers of the stock price as being a good set of high margin products such as the iPad, iPhone and the Macintosh computers. All this is uncontroversial and the dominance of Apple in these markets suggest that its profits are guaranteed for a while. Indeed, Farhad goes on a limb and states, tongue in cheek perhaps, that he would recommend a buy for anyone with money to invest.
I agree that Apple stock is a great buy but I am less inclined to believe that any savvy person should consider the P/E ratio in making that decision. My reason is that it is true that Apple's P/E ratio is still lower than that of other comparable firms but that should not lead to the conclusion that Apple's numbers should match those. It may just be that the other firms are now due for a downward adjustment. tThis change would still make Apple a good buy in relative terms and not necessarily because it would rise further. In other words, the P/E is a guide yes, but it does not tell one whether it is Apple that will rise or others with a lower ratio that will be coming down. Apple is a good buy because its management makes fine products with a higher margin that its competitors and which satisfy its buyers. With these factors established, the P/E ratio is a red herring.
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