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Technology Stocks : Apple Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Cogito who wrote (122029)	11/16/2011 3:58:35 AM
From: ChrisGillette	Read Replies (5) \| Respond to of 213172

<<Apple offers more than twice the Return on Assets of Exxon, and 41% Return on Equity as opposed to 27%. Apple's numbers look better than Exxon Mobil's on any number of fronts, and so do their prospects for growth.>> Are ROA and ROE the appropriate metrics? IMO the two most important metrics in valuing a company are (1) Level of expected cash flows, and (2) Reliability of expected cash flows. In response to my original posting, a few people commented that EBITDA is not the ideal metric by which to compare Exxon's cash flows to Apple's. Fair enough. But does anyone dispute that Exxon's cash flows are much more reliable than Apple's? Tech changes very rapidly, and consumers are not locked-in to Apple. This creates cash flow risk, as Apple's success depends entirely on its ability to crank out must-have products year after year. In contrast, a company like Microsoft provides a great example of lock-in: A history of buggy, inferior products, yet it still generates tremendous cash flows because of network effects, switching costs, etc. Under Steve Jobs, Apple cranked out must-have products year after year for the past 10 years. But trying to replace Steve Jobs is like trying to replace Thomas Edison. There's really no substitute. And without Steve Jobs, Apple's ability to continue cranking out must-have products is weakened. Apple just released a great new phone as well as a great earnings report. Yet its stock has languished. I think you'll see more of this. When you're already the most (or second-most) valuable company in the world, there's just not that much upside left since expectations are already incredibly high.