iPhone 5 iPhoria pushes Apple share to $700: Time to exit?

The euphoria surrounding record iPhone 5 pre-orders received by Apple have pushed its share price to above $700 apiece for the first time in the history of the company, firmly establishing it on the pedestal of the most valuable company in the world.

Apple started accepting orders for its new smartphone on Friday, and announced on Monday that pre-orders for the iPhone 5 had topped two million in the first 24 hours. This statistics was, perhaps, enough for investors to gauge the amount of profit that Apple stands to make from further sales, pushing its share price to stratospheric levels. 

Apple’s share price touched $702.33 on Tuesday, propping up its market capitalisation to $657.97 billion, a gain of more than $25 billion in a month or so.

Apple became the most valuable company in the world on August 21, when its shares rose above $674 apiece, with the company’s market-cap shooting to $632.64 billion on the day – $13 billion more than the previous best of $619 billion clocked by Microsoft in 1999. With the current market cap of $658 billion, Apple has bettered its own record.

However, while the Cupertino-based firm is indeed the world’s most valuable company today, technical analysts have started hinting that the share may be overbought and that a correction may be imminent.

Its price-earnings ratio (three months trailing) is in high teens (at 16.5) and while it not unnatural for technology firms to have such high P/E ratios (Google’s is 21.29 and Amazon is a staggering 315.16), Apple is a typical case.

For, it is not only the largest company on the world, unlike other tech firms such as Google or Amazon which sell services, the Cupertino-based giant makes its money from manufacturing and selling tech devices – and, so, it is more like a glamourised automobile firm, like a General Motors (with a P/E ratio of 8.7) or a Ford Motor Co. (2.37).

Apple should indeed be comparable with Samsung Electronics, its arch-rival. While Samsung’s share price of $1,210 is indeed much higher than Apple’s, its market cap of $182.25 billion is nowhere close to its rival’s. Samsung’s P/E ratio, though, is a much sober 11.72.

On the other hand, while Apple’s earnings per share (EPS) stands at 42.55, Samsung’s is a much higher 103.27, making it actually more profitable for its investors.

Apple share is indeed in the overbought territory, but given the hype surrounding its latest smartphone, it could well remain there for a while. But as with everything else related to markets, one must remember that what goes up…
 

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