In part 1 of this series about the valuations of Amazon, Apple, Facebook and Google, we began to answer the question: how do these companies stack up against each other from a statistical analysis perspective?
In part 2 we will cover the past performance of these tech giants (squid?) in the same way Ben Graham explained in chapter 13 of The Intelligent Investor by looking at 10 year’s worth of statistical data on each company.
Before that, I’d like to briefly outline some conclusions for you about the statistical data found in the previous post for our tech stocks.
If you have not reviewed this information, please do so now by clicking here before continuing. It is not essential that you do, but it will enrich your understanding of Ben Graham’s method from The Intelligent Investor if you do.
The relevant observations from the data are:
- Apple clearly stands out as a company that has shown superior growth, low levels of debt and a low price to earnings.
- Facebook has such a short operating history, that no helpful conclusions can be drawn other than at 268 times earnings, it is on the expensive side.
- What you cannot get from the data is that Apple has had the longest operating history out of the giant 4.
- Apple is the only company paying a dividend.
- Apple, Facebook and Google posted high net profit margins this year whereas Amazon’s were disappointing in comparison.
- All four companies are trading massively over tangible book value which I would expect from large caps in this current market.
- Facebook has the strongest balance sheet as measured by the current ratio
There are more observations to be made but following in the footsteps of Ben Graham, let’s continue with our statistical analysis by taking a look at the last 10 year’s worth of past performance of our tech giants.
We shall focus on the ‘chief elements of performance’ as Ben Graham referred it. They are presented in the table below.
|Return on Assets||2002||2003||2004||2005||2006||2007||2008||2009||2010||2011|
|Return on Invested Capital||2002||2003||2004||2005||2006||2007||2008||2009||2010||2011|
|EPS % from previous year||2002||2003||2004||2005||2006||2007||2008||2009||2010||2011|
|EPS growth rates %||Previous 3 yr avg up to 2002||Previous 3 yr avg up to 2011||10 yr avg|
|*All data fields are from ADVFN|
When you consider the statistical review in part 1, the past performance of our 4 giants as represented in the table comes as no surprise.
The Highlights – A Quick Fire Review
- The lack of financial data for Facebook is glaring.
- Apple and Google have posted consistently high returns on assets and returns on invested capital.
- Apple has been superior in this regard because it is the only company out of the 4 that has managed to increase returns every year for the last 10 years – can Apple maintain a high returns in the future?
- Amazon posted its only earnings deficit in 2002 for the previous 10 years. Apple and Google have not posted earnings deficits in the last 10 years.
- Apple has grown earnings every year for the last 10 years. Facebook has only 1 years’ worth of earnings.
- Amazon has posted 3 earnings drops out of the last 7 years. Apple and Google have fared much better: no earnings drops over the last 10 years.
- Although Google has a higher 10 year average earnings growth rate at 93.71%, Apple’s is no too shabby at 85.81%. Moreover, Apples’ yearly growth rate has been more stable and less ‘choppy’ than Google’s.
How Do Our Tech Giants Stack Up Against Each Other?
Its pretty obvious by now which company stands out as having the best past performance from our 4 giants.
But that does not make Apple a candidate for investment, although it will end up on my watch list 🙂
Because I have yet to read Apple’s annual reports, proxies and quarterly reports and Apple does not meet all the criteria of being a relatively unpopular large company – this is an investing strategy aimed at large cap stocks (over $10 billion market cap) that Ben Graham explained in The Intelligent Investor.
Others will disagree and I encourage you to comment about this at the end of this post if you do. I’m human and could quite easily miss something.
The way I’m programmed as a value investor also makes me focus on deeper value than is the case; for example if Apple were to go through a period of temporary unpopularity, my perspective could change.
Are my expectations too high?
The real point of this post was not to make an investment case from our 4 tech giants, but to see what assumptions we can make about them based on statistical data and past performance.
This process has lead me to choose one company to complete further analysis on with the knowledge that it has a strong track record of increasing returns on assets and invested capital as well as earnings growth.
Well, I hope you’ve enjoyed this short exercise in security analysis. Thanks for your support and I wish you all the best with your investments. Please spread the word by retweeting or sharing this article via the share buttons below. All the best.