Post by burgess on Feb 18, 2013 16:12:27 GMT -5
Feb 17, 2013 23:22:57 GMT -5 @greggthurman said:
Not disputing good old Graham's theory, but wondering how that theory stacks up against a firm that has a habit of entering/creating, then dominating said markets, thereby generating new sources of revenue not included in previous revenue periods.
Until 2000 Apple was a Mac company - one product category/one revenue stream.
It then became a Mac and iPod company, thereafter adding digital music (iTMS) to its revenue sources - three product company/three revenue streams.
Then along came the iPhone and the App Store, and then the iPad with its attendant app sales. The original iTMS had dropped the M from its name as Books, Movies, TV content and Mac software was added to its digital offerings. Eight product company/eight revenue streams.
Now Apple seems poised to add yet another revenue source to its highly successful stable with some kind of TV product, and search, and advertising, nine (maybe 10, 11 or 12) product company/9, 10, 11 or 12 revenue streams.
How does Graham's theory (which I don't have a problem with, if properly applied) address this scenario? Frankly, I don't think it does, because it looks at actual earnings from a single product company (can anyone say MSFT?), and not the rate of growth of said earnings, caused by entering/creating new revenue streams (isn't that why firms buy competitors or diversify into other industries?). Graham's theorem would certainly apply if Apple remained a one product company, like maybe ... Amazon, or Google. But it isn't.
Taking into account Apple's apparent ability to lead industries in new directions time and time again, I don't think Graham applies at all.
I agree, that article showed a case when applying the theory would be foolish.
If apple had remained simply a company based on one mature product line in one mature industry, then the theory may hold some weight. However trying to claim that apples recent explosive growth from the iPhone or iPad should be mostly discounted and taking average earnings over the last 5 years as a baseline for investing is retarded.
I would simply refute it by asking what the iPhone and iPad and App Store would be worth if those product lines were started as separate companies instead? Calculate there profits and growth rates, get your independent valuations, and then add those to the existing Apple business made up of Mac, iPod & software/iTunes, and then come back to me with a valuation.
Oh, and don't forget the $150 per share in cash.
Oh and don't forget about potential from future product lines.
Much like in an upswing, many bull theories look to be correct, in a downswing many bear theories are being touted as correct. But most theories are bogus.