AAPL and $700 Billion

Apple just crossed the $700 billion market cap threshold. I thought it was a good time to put this event into perspective. 

  • What does this tell us about Apple's future? Nothing. 
  • What does this tell us about Apple's past? Nothing. 
  • What does this tell us about Apple? Nothing. 

A stock's valuation is simply the value point at which the demand for a company's stock is equal to the supply of that company's stock.  Any discussion around a stock's price, or any guessing as to where a stock price is headed, needs to focus on a stock's supply and demand. Luckily, analyzing a stock's supply is relatively easy.

  • Determine who wants to sell their shares. 
  • Determine why they want to sell their shares.
  • Determine at what price are they willing to sell their shares. 
  • Analyze the business landscape to determine if the company will need access to additional capital.
  • Determine if raising more public equity would be in the company's best interest.

Once that analyses is complete, even more straight-forward analyses needs to be done to determine a stock's demand. 

  • Determine who wants to buy shares. 
  • Determine why they want to buy shares.
  • Determine at what price are they willing to buy shares.
  • Predict what that company's detailed capital management plans will look like for the next few years. 
  • Analyze the business landscape to determine if the company will decide to buy back its own shares. 
  • Determine if another company will be interested in buying the company's shares. 

Once these eleven points have been answered or analyzed, one can then make predictions as to where a stock price is headed. 

In reality, it's impossible to analyze most of these points, and I'm sure I left out a dozen more. Since investors don't like the unknown, commentators and pundits focus on developing an interesting story around why a stock is performing a certain way in an effort to remove unknowns from the equation.

The more appropriate type of analyses ignores day-to-day stock fluctuations and instead focuses on the company behind the stock. By analyzing a company, many of the above unknowns dealing with that company's stock melt away or become irrelevant.  

Apple crossed the $700 billion market cap threshold and this told us just as much about Apple today that it did yesterday: nothing.