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Apple Financial

In the usual on October 23, 2007 by karan Tagged: , ,

Apple announced their financial results for the last quarter yesterday, and the numbers were good. And the market is pleased, send AAPL up and up and up, approaching $185 today.

Leave aside all the market cap nonsense that everyone is talking about, here’s a far more fundamental figure. If you’d bought Apple stock on Oct 31, 1997, and sat on it for ten years, you would have made a pretty penny or two. On 31/10/1997, Apple was $4.25 a share. Leaving the two stock splits since out of it, now, each share is worth $185. That’s a sweet little $180 per share you can book as profit.

But wait, there’s a time value to money too – what’s the cost of having it sit in Apple stock for so long when it could have been doing something else, like earning interest? Well, it’s take an average 4%, compounding yearly. That ought to flatten out the period in the middle when US interest rates were 1% ish. 4% over 10 years means you’ll pull out … $6.29. $6.34 if it’s continuous compounding! So you could book, uh, $178 as performance above average.

Put it another way – if it was yearly compounding, you’ve got 45% interest p.a., 38% if it’s continuous. Or a straight-up 3100% if it’s simple. Try getting that from your bank.

What about the competition? Microsoft? Hah. They’re up 81% total (opposed to Apple’s 3100% figure). Intel? 18%. (n.b. figures from Google Finance)

One might take the view that Apple’s current price is unsustainable, trading as they are at 50x Price-to-Earnings ratio, but if I’d had Apple shares in trust 10 years ago, and it expired right about now, I’d be more than happy to cash out =)

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2 Responses to “Apple Financial”

  1. You could say that about every successful company. The fact that they were sitting at such a low value in 97 is because that’s what the market thought it was worth. Try convincing yourself of spending even $100 on AAPL stock in 1997 and sticking it out until Nov 2007 when all current signs point to a quiet death.

    Gee whiz, if I had a time machine, I’d be rich too.

  2. You can’t say that about any company – if it hasn’t added an average of 3% a year at least, it’s growing slower than inflation, and you’d have done better sticking your money in a decent interest-earning account. Inflation measures the price of having your money sit around, so if you don’t beat that your value is being eroded as time passes.

    Intel’s 18% growth over 10 years is less than 3% – it’s about 1.7% annually, so you’ve effectively lost at least 1.3% a year – for a reference price of $100 in 97, it’s currently at $118, and should be $131.

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