The real difference between Microsoft, Apple’s record valuations

News that Apple became the most valuable company ever has dominated the tech news space over the past couple of days. It was quickly pointed out that it didn’t actually hold the mantle on an inflation adjusted basis, but then again who is checking that? It turns out that there are some folks. They have every right to do so, I just think they’re looking for answers in the wrong places.

The stock closed at a 52 week and all time high at US$665.15 a share, to give the company a market valuation of US$623.52-billion. This tops the Microsoft all time high back in December of 1999, where the company was grossly over-valued at US$616.34-billion. The strike out is for obvious reasons, Apple currently trades on a multiple of only 15.64 times, historic that is.

For the financial year to end September 1999, Microsoft earned 34 cents per share. 34 cents? There has been one stock split on the 18 February, so adjusted for that you come to 68 cents for the full year. At that stage, adjusted for the prior split the stock reached US$58.37 the day before Christmas 1999.

Back then the stock then traded on a historic valuation of 85 times earnings. You can adjust that market valuation back then for inflation (see someone here did that -> Apple Becomes the Most Valuable Public Company Ever, With an Asterisk) and come to around US$856-billion, but the point that I am trying to make is that back then Microsoft was way overvalued. Crazy.

And Apple? Well, the stock hardly looks stretched at just over 15 times earnings. The analyst community, for what it is, suggest that the company can deliver next fiscal earnings of US$52.77 per share. Check out the MarketWatch Apple Inc. analyst estimates.

And adding more to the conversation is that someone has gone further back and said on an inflation adjusted basis that IBM would be worth US$1.3-trillion, had it maintained the same rating afforded to the stock back in 1967.

Some people are taking this all time high in their stride, others are rubbishing the facts (claims), suggesting that the world has seen more valuable companies before, on an inflation adjusted basis.

I am taking a different angle. My suggestion is that the valuations are probably more important than absolute market value. And on that basis I think that you can continue accumulating Apple, in anticipation of the release of a new iPhone and increased sales of the iPad, which have multiple uses in both the work and education spaces.

Earnings. Future, both immediate and longer dated depends on where the stock will trade. Because as sure as eggs are eggs (and Blackberrys are Blackberrys), the new products are being lapped up by Joe Public.

Be careful, that can all change in a flash. Consumers are notorious for always running at the next new thing. Apple’s greatest risk is also its greatest attribute, making amazing products and keeping the consumer allure.