The interesting dynamic at play behind Apple’s stock price is that it is the product of two competing forces. First, Apple (NASDAQ:AAPL) is a technology company. Any technology company is prone to hype and buzz. You only need to look at the NASDAQ 500 stocks and you would see the power of hype and buzz. Even if a company is not making much money, if there is enough hype behind its hotshot technology, expect that stock to blow up. The poster child of this phenomenon, of course, is Tesla Motors and its completely out of this world price-per-earnings ratio.
Apple is a solidly tech-driven stock. This is why Apple has a lot of followers and a lot of watchers. Apple’s stock is also heavily hyped. There is a lot of upward pressure due to this tech hype on Apple. If this was the only part of the equation at play, then Apple’s stock will continue its march towards a $1 trillion valuation. Unfortunately, it is also a giant company. This is where the downward pressure comes in.
As companies become more mature and are bought out by large institutional investors like hedge funds, banks, and investment firms, in addition to multitudes of individual private shareholders, it has to operate within the established bounds of traditional investing rules. The most crucial traditional investing rule, of course, is price-per-earnings ratio. This is why it is no surprise that Apple’s stock can’t seem to get past the 18 to 19 P/E range. This is not due to lack of hype. This is due to the fact that it is so big that it has to play within those rules.
Market factors still rule, and Apple’s stock has to behave accordingly. This is why I have always advised investors that if you are not in Apple already, it is probably a bad idea to get in right now. However, if you are already in Apple, it is probably a good idea to look for certain signals as to when to sell. You want to time the market properly. You want to sell near the top.