Few stocks trigger investors' emotional responses as much as Apple (AAPL) - Get Report . People who love the product lines tend to love the shares. They go with Fidelity's legendary fund manager Peter Lynch's, "Buy what you know" school of thought.
Intense non-financial reasons for owning the stock can cloud memories of how well, or not well, AAPL has done for long-term holders.
Bespoke Investment Group published an interesting graphic last Friday (Sept. 15, 2017) which compared Apple's performance with that of the S&P 500 over the preceding half-decade.
APPL sizzled YTD but actually trailed the broad market over the full five years. It also exhibited much greater volatility along the way. Somewhat surprisingly, AAPL made more than 100% of its total gain since Sept. 2012, over just the most recent 13 months.
Fans of the company like to project the shares will go much higher due to a combination of increased earnings per share and price/earnings (P/E) multiple expansion.
Is that a realistic expectation? Let's separate fact from fiction based on Apple's actual trading data and its business fundamentals.
Fact: AAPL shares were available at P/Es of 12.5x or lower (based on current year's final profits) during parts of each calendar year from 2009 through 2016 (green-starred below).
Fact: AAPL's average P/E over the entire seven years from 2009 through 2016 was 13.7x.
Fact: AAPL's average yield from 2013 through 2016 was 2.08%.
Fact: The two worst recent times to buy AAPL (red-starred) each occurred at higher-than-typical P/Es accompanied with lower-than-average yields.
Fact: Momentum chasers at those 2012 and 2015 tops had to wait two to four years before seeing sustainable real returns.
Fact: Traders who bought this year's fleeting peak of almost $165 are nursing small paper losses. AAPL shares still command 17.7x consensus estimates for fiscal year 2017 (ends September).
Fact: If Apple regresses to a more typical multiple while earning $10.95 in FY 2018, the shares might still only be $150 a year from today.
Betting against reversion to the mean on Apple or any other stock is a risky proposition. Average levels get to be called that because valuations revolved around those levels dating well into the past.
Buying APPL when it sold at discounted multiples always worked out well. Picking up shares or holding on, when AAPL fetched above-average P/Es led to long periods of frustration.
Apple is a great company with a dominant franchise. Value Line see sales and earnings growth on tap for the coming three to five years. Even so, future gains appear muted due to AAPL's somewhat pricey current valuation. The projections were made when AAPL traded near $145, not $150.
The "Law of Large Numbers" works against the idea that AAPL can continue on an exciting trajectory. Its enormous market cap and revenue base makes it less likely to compound as it did when the iPhone was first introduced.
Future stock market action can never be guaranteed. Apple could go on to post better-than-expected results while trading at ever higher P/Es.
Apple's historical trading metrics, though, suggest upside is limited while downside is not insignificant. A return to a 12.5x multiple, which happened with some regularity in the past, could drop AAPL to about $137 even if forward estimates prove accurate.
Where is Apple likely to go next? I'd bet on sideways to down over the coming 12 months rather than higher.
Let the hate mail start.
This commentary originally appeared onReal Money Pro at 7:00 a.m. on Sept. 19. Click here to learn about this dynamic market information service for active traders.
At the time of publication, Price had no position in any stocks mentioned.
Action Alerts PLUS, which Cramer manages as a charitable trust, is long AAPL.