Public Tech Company Valuations are also Bullshit

Most tech companies don’t take stock options into account when calculating employee compensation expenses. Therefore the earnings numbers they publicize are bullshit.



Amazon (AMZN)’s P/E ratio, when calculated using Generally Accepted Accounting Principles (GAAP) is 1192.9. That’s twice as high as any other large-cap stock out there.

Notable exceptions in the tech world include Microsoft (MSFT), Intel (INTC), and Apple (AAPL), which report only GAAP earnings.

See Also:
How Much Do Silicon Valley Firms Really Earn? –Barrons (if you have trouble viewing the page, try grappling hook)

NASDAQ is Partying Like it’s 1999

Screen Shot 2015-03-02 at 9.33.40 PM

Actually, it’s partying like it’s March 2000. The real credit goes to AAPL, which makes up 15% of the NASDAQ composite. But the real credit goes to Carl Icahn, who controls Apple’s stock price by tweeting at it.

It took 15 years to get back to this level! Remember what the world looked like in March 2000? Thank god we don’t live in that universe anymore.

AAPL, The Giving Tree

GivingTreeAAPL copy

Apple has raised less money in its entire 4-decade lifespan than most of today’s startups.

In 1980, Apple (AAPL) raised $97M in an IPO. In 1997, Apple received a $150M investment from Microsoft. Apple hasn’t seen a dime of outside investment beyond that. The AAPL shares in your Roth IRA? You bought that from a secondary trader on NASDAQ, who bought them from someone else who paid Apple 0.4% of your purchase price.

With only $247M in outside investment, Apple bootstrapped itself to become the second most profitable company in America (behind Exxon Mobil). To be fair, $247M was a lot of money back then. But Uber and Box and their billion-dollar rounds can’t even touch that.

What more, AAPL has given so much more than it’s received. To date, it has issued $21.8B in cash dividends and spent $52.8B on buybacks.

Why is Apple so generous to shareholders who have given it so little? It’s not AAPL’s job to prop up Carl Icahn’s net worth, or to provide for everyone’s retirement fund.

Apple only cares about its share price because its board and employees receive some compensation in stock options, and share prices can lead to more favorable terms for debt financing*. Also I guess they don’t want to look like a cheap acquihire target for Yahoo or Facebook or something.

Disclosure: I am long AAPL.

*Apple issued $12B in corporate bonds this year. They have $151B in cash, but it’s cheaper for them to borrow money at low interest rates than to pay taxes to bring the cash back from overseas.

See Also:
Why Do Companies Care About Their Stock Prices? –Investopedia

Being Contrarian

Sometimes, an equity is so beloved that there’s no one left to buy it. I’m looking at you, late-2012 AAPL. I’m also looking at YOU,, with your 97.8% institutional ownership.

This chart will keep updating itself so that I can come back in a few months and see how wrong I was.
This chart will keep updating itself so I can come back in a few months and see how wrong I was.

Deep thoughts from S&P Capital IQ Chief Equity Strategist Sam Stovall: “If everybody’s optimistic, who is left to buy? If everybody’s pessimistic, who’s left to sell?”

In 2012, the best-performing sector was Financials. In prior years, everyone hated real estate and bank stocks so much that they couldn’t possibly hate it any more.

In 2013, the best-performing industries were Semiconductor Memory and Solar. We’ve been bearish on solid-state anything since Solyndra died in 2011.

When all the experts and forecasts agree, something else is going to happen.

If you bought the 10 stocks in the S&P 500 with the most sell ratings at the beginning of the year, equally weighted, you would have been up 75% YTD. If you bought the 10 stocks in the S&P 500 with the most analyst buy ratings, you would have only been up 22%.

Wanna play this game again next year? Here are the least-recommended stocks in the S&P 500 right now:

    Comerica (CMA)
    Deere & Co (DE)
    Exelon (EXC)
    Progressive (PGR)
    Bemis Co (BMS)
    Consolidated Edison (ED)
    Harris Corp (HRS)
    Hospira (HSP)
    Paychex (PAYX)
    People’s United Financial (PBCT)

The worst-performing industries this past year have been Industrial Metals & Minerals, Latin American Banks, and Residential REITs. If you’re a contrarian, go nuts and buy gold and investment-grade bonds, because the crisis isn’t over AHHHHHH. Scale back on U.S., European, and Japanese stocks. Increase exposure to emerging markets, especially Brazil.

A contrarian is, by definition, fighting the market. You cannot do this all the time unless you enjoy being wildly wrong.

Disclosure: I am long ARLP and BTU.

See Also:
Let Fear Be Your Friend in the Market –Forbes