The company earns no profits, and only burns cash. Sure, Pandora is growing its revenue strongly. But with each passing year, as revenues rise, losses rise even faster. In 2011, for example, Pandora posted revenue growth of 98.5%, but losses increased nearly 800%. Last year’s 56% slower revenue growth resulted in a 136% increase in the amount of money Pandora was losing.
In short, it’s entirely possible Pandora will grow every bit as fast as Morgan Stanley says it will, that it will expand into new fields of broadcasting, and retain dominant market share. But all of this is for naught if the company can’t earn a profit. And so far, it hasn’t.
And speaking of profits…
One company scoring an upgrade this morning, and earning the kinds of profits that could justify it, is Apple Inc. (NASDAQ:AAPL). Right on the heels of news that Apple has filed a trademark in Japan for the term “iWatch,” we hear that analysts at Raymond James are upgrading the stock to “strong buy” as the company enters “phase 2” of an expansion beyond smartphones and tablets, and into new kinds of smart devices.
In addition to the iWatch, Raymond James discusses the potential for mobile computing to expand throughout the automobile industry, televisions, appliances, and other devices — and suggests Apple Inc. (NASDAQ:AAPL) will continue its history of innovation as “mobile” moves into these new areas.
This expectation that Apple Inc. (NASDAQ:AAPL) — already a $169 billion-a-year business — will find new ways to grow in the future explains why so many analysts still see the company growing earnings at a 20%-plus clip over the next five years. What it does not explain is why investors continue to think that growth rate is only worth paying less than 10 times earnings for.
Raymond James, with its strong buy recommendation, and its $600 price target, seems to think Apple Inc. (NASDAQ:AAPL) is worth a lot more than its shares currently fetch on the market. I do, too.
Fool contributor Rich Smith owns shares of Apple. The Motley Fool recommends 3M Co (NYSE:MMM), Apple, Netflix, Inc. (NASDAQ:NFLX), and Pandora Media (NYSE:P). The Motley Fool owns shares of Apple and Netflix.
The article Monday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.
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