It's hard to look at a company that investors value at $630 billion and not think that irrational exuberance is propping up its share price. But a new analysis by Reuters shows that, at least compared with Microsoft, Apple's not overvalued. In fact, the company's price-to-earnings ratio has, generally speaking, dropped as its market cap grew.
As Felix Salmon explains:
What this says to me is that the market in Apple shares looks a lot more rational than the market in Microsoft shares. Investors will pay huge multiples for Apple shares when the company looks cheap, but not when the company looks expensive. When Apple breaks the half-trillion barrier, that's despite the fact that its p/e ratio is low; when Microsoft breaks that barrier, it's because its p/e ratio is high.