Apple’s sales rise, profits rise, shares tank: WTF?
A USEFUL little reminder of something that economists keep trying to tell people but which often doesn’t seem to get through. Stock markets are forward looking.
So, we have Apple reporting its financial results for the most recent quarter. Profits were up (only very slightly, but they were). Sales were well up. Everything’s looking pretty rosy in hte Cupertino garden. At which point the shares drop 10% in minutes.
What the hell is going on here?
The answer is that stock markets are forward looking. The technical description of the current share price is the current value of all the money the company will ever make off into the infinite future. Or if you want to get really picky, what all the buyers and sellers averaged out think that current value should be.
Which means that share prices are not determined by what past profits have been: not at all. They’re defined by what people think future profits will be. And these results make people think that Apple isn’t going to keep growing as quickly as they thought it would yesterday.
They might pull something out of the hat in the future. We might get Apple TV as something more than a toy. There might be a mini-iPhone. Maybe they’ll release a special iPhone that will work on China’s largest network (none of the current ones do). But until there are signs of something like that rekindling growth then those forward looking markets are going to mark down the share price.
It just ain’t where you’ve been it’s where you’re going.
Posted: 29th, January 2013 | In: Money, Technology Comment | TrackBack | Permalink
