Will Apple stop growing 37% a year?

August 5, 2010: 8:49 AM ET

The law of large numbers says it must. Not anytime soon, says Robert Paul Leitao.

Click to enlarge. Source: Company reports

The law of large numbers as applied to finance (as opposed to flipping a coin) says that as a company grows, its chances of sustaining large percentage revenue gains diminish. That's because an expanding enterprise must grow faster and faster just to maintain a constant percentage growth rate. Indeed, a company growing 30% to 50% a year will soon be larger than the entire economy.

But that's just what Apple (AAPL) has been doing. Over the past 11 quarters its revenue has grown an average of 37.5% year over year and its earnings an average of 68.5%. Moreover, it doesn't appear to be slowing down. According the Thomson Financial, the Street is looking for another blowout quarter in September, with sales up 86% and EPS up 42%.

Common sense tells the casual observer that this can't go on. But common sense would be wrong, writes Robert Paul Leitao -- a.k.a. DawnTreader -- a regular at the Mac Observer's Apple Finance Board and one of the more thoughtful commentators on this site. In an entry on his Posts at Eventide blog, he outlines the reasons why the law of large numbers does not apply to Apple, at least at this point in time.


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