Apple (AAPL) briefly surpassed the $600 bln mark in market capitalization today before closing slightly lower. The only other company that has ever surpassed that milestone was Microsoft (MSFT) which did so briefly in December 1999, during the hyper-inflated bubble period. Nine months after Microsoft reached (and receded from) that loftly perch, General Electric (GE) flirted with the $600 bln level, falling just short.
The most striking thing to me is that Apple might actually be deserving of that incredible valuation, while it was obvious to clearer eyed observers of the time that the valuations of Microsoft and GE were hyper-inflated by bubble-era thinking.
Microsoft’s $600+ bln market cap was based on a trailing P/E ratio of over 68x and represented a similarly incredible multiple of more than 63x trailing cash flow per share. GE’s near miss of the magic $600 bln level was likewise predicated on fat multiples: almost 50x trailing earnings and over 29x cash flow per share. Investors of that era were clearly comfortable paying up for growth, as Microsoft had a three year average revenue growth rate of 27% at the time, while GE sported a three year top line growth history of just 12% per anum.
The comparable statistics for Apple tell a startlingly different story: one of comparatively modest multiples and of ludicrous top line growth. Apple’s current trailing P/E is about 18x and its price-to-cash-flow is under 13x. This is compared to an average growth rate of just under 59% per year over the last three calendar years. Only once over the past nine quarters has Apple failed to surpass 50% in y-o-y revenue growth.
I have no idea what level of growth Apple can sustain in future years, nor whether it can maintain its current valuation level, but there can be little doubt it is far more deserving of its incredible current market value than its predecessor in “the $600B Club”.