MONEY Food & Drink

Why Shake Shack’s IPO Is Too Rich for My Blood

Shake Shack founder Danny Meyer (3rd R) and Shake Shack CEO Randy Garutti (2nd R) ring the opening bell at the New York Stock Exchange to celebrate their company's IPO January 30, 2015. Shares of gourmet hamburger chain Shake Shack Inc soared 150 percent in their first few minutes of trading on Friday, valuing the company that grew out of a hotdog cart in New York's Madison Square Park at nearly $2 billion.
Shake Shack founder Danny Meyer CEO Randy Garutti ring the opening bell at the New York Stock Exchange. Brendan McDermid—Reuters

I used to think Shake Shack might be undervalued. Not anymore.

Last week, I wrote a positive article on burger chain Shake Shack’s SHAKE SHACK INC SHAK 118.5714% IPO on the basis that, “in [the indicative $14 to $16] price range, the shares could significantly undervalue Shake Shack’s growth potential.” The shares began trading today, and I’m much less excited about the offering. In fact, I think investors ought to avoid the stock entirely. What’s changed?

Is no price too high?

It’s not unreasonable to think a stock that is attractive at $15 may well be repulsive at more than three times that price — which is where Shake Shack shares are now trading. (The stock was at $48.62 at 12:30 p.m. EST.) Indeed, the underwriters raised the price range to $17 to $19 — and the number of shares being sold — before finally pricing the shares at $21.

Apparently, that did nothing to deter investors once shares began trading in the second market this morning – they opened at $47, for a 124% pop! Despite solid or even outstanding fundamentals, a business will not support any valuation. Price matters.

Last week, I compared Shake Shack to Chipotle Mexican Grill CHIPOTLE MEXICAN GRILL INC. CMG -0.6564% . Let’s see how the share valuations of the two companies on their first day of trading now compare:

Number of restaurants operated by the company at the time of the public offering Price / TTM Sales
(based on closing price on first day of trading)*
Chipotle 453 4.4
Shake Shack 26 16.1

*Shake Shack’s price-to-sales multiple is based on the $48.62 price at 12:30 p.m. EST. Source: Company documents.

That’s a huge gap between the two price-to-sales multiples! Given the massive appreciation in Chipotle’s stock price since the close of its first day of trading — a more than fifteenfold increase in just more than nine years! — there’s a good argument to be made that the shares were undervalued at that time.

However, had Chipotle closed at $160 instead of $44 on its first day of trading — which would equalize the price-to-sales multiples — subsequent gains would have been significantly less impressive.

Buy potential performance at a discount, not a premium

Furthermore, with Chipotle, we are looking back at performance that has already been achieved, both in terms of the stock and the company’s operations. The Mexican chain has executed superbly well during that period.

With regard to Shake Shack — however likely you think a similar business performance is — it remains in the realm of possibility instead of certainty. I don’t know about you, but when I buy possibility, I like to buy it at a discount to the price of certainty.

Although I think Shake Shack’s brand positioning is comparable, and possibly even superior, to that of Chipotle, I’m not convinced the business fundamentals are as attractive.

For one thing, Shake Shack faces stiffer competition in its segment than Chipotle did (or does) in the likes of Five Guys and In-N-Out Burger. For another, Shake Shack’s same-store sales growth is significantly lower than Chipotle’s was, at just 3% for the 39 weeks ended Sep. 24 versus 10.2% for Chipotle in 2005, which was followed by 13.7% in 2006.

Don’t swallow these shares

Shake Shack may produce a premium burger — founder Danny Meyer refers to this segment as “fine casual dining” — but the stock is currently selling at a super-premium price. Paying that price is the equivalent of eating “empty calories” — it could end up being detrimental to your financial health.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

 

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MONEY interest rates

Why U.S. Investors Should Care About the Currency War

A currency war will force the Federal Reserve to keep interest rates low.

At the end of 2014, it seemed all but certain that the Federal Reserve would raise interest rates in the first half of this year. But thanks in part to an escalating currency war and recent flair-up in Europe over Greek debt, those plans have been shelved.

The central bank said on Wednesday that it will keep short-term interest rates between 0% and 0.25% despite its opinion that “economic activity has been expanding at a solid pace.” Importantly, the Fed said that its assessment of when to raise them will take into account “readings on financial and international developments.”

While the bank didn’t offer details about what “international developments” it was referring to, there can be little doubt that the dollar’s strength plays a pivotal role. Since last July, the value of the dollar has soared by 15% versus the world’s major currencies, making U.S. exports less competitive in global markets.

The impact from this has become increasingly clear as American companies report earnings for the final three months of 2014. “The rising dollar will not be good for U.S. manufacturing or the U.S. economy,” Caterpillar’s CEO Doug Oberhelman told analysts and investors Tuesday. Procter & Gamble said its fourth-quarter sales struggled against a “five percentage point headwind” from foreign exchange. And even Apple’s shockingly strong quarter “would have been even stronger, absent fierce foreign exchange volatility.”

The dollar’s strength is being fueled by multiple factors. Lower oil prices have caused currencies in Russia, Mexico, and other energy-dependent economies to fall precipitously. Since the middle of last year, for instance, the Russian ruble has lost roughly half of its value versus the dollar.

Monetary policy by the European Central Bank is also playing a role. In an effort to jump-start the continent’s ailing economies, the ECB announced earlier this week that it would follow in the Federal Reserve’s footsteps by buying 60 billion euros in government bonds each month over the next year and a half. Because this expands the number of euros in circulation, anticipation of the news pushed the euro’s value to its lowest point vis-a-vis the dollar in more than a decade.

Finally, actions by central banks in Canada, Singapore, Japan, and other countries suggest a deliberate attempt to manipulate exchange rates in a broadening currency war. Most recently, Canada cut its benchmark interest rate last week by a quarter of a point, and the Monetary Authority of Singapore said this week that it would take measures to slow the appreciation of the Singapore dollar.

The net result is that the Federal Reserve has little choice but to delay an increase in interest rates. Doing otherwise would only further drive up the value of the U.S. dollar given that higher rates would attract international capital, and thereby boost the demand (and thus price) for dollars.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Apple and Procter & Gamble. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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MONEY Jobs

Noooo! GDP Slowed in Fourth Quarter. And That’s Not Even the Worst Part.

150130_INV_LowWageGrowth
Jan Stromme—Getty Images

While the U.S. recovery continued in the fourth quarter, wages didn't grow as fast as many economists were hoping.

Economists got a fresh read on the U.S. recovery today: The federal government reported fourth-quarter gross domestic product growth slowed to 2.6% from the third-quarter’s 5%.

The good news is few economists expected the economy to outstrip the third-quarter’s robust number. The bad news is slower GDP growth wasn’t the only disappointment. In fact, many experts were looking past that headline number at something else: the Employment Cost Index.

The Labor Department index, a measure of overall employment costs, including wages but also benefits like health care, rose 2.2% year over year for the fourth quarter. It had grown 2.3% in the fourth quarter, and economists had been hoping that it would meet or exceed that mark.

That it failed to do so suggests wage growth—largely seen as the last missing piece of the recovery—still hasn’t picked up as much as we would all like. The upshot is that, while Americans seem to be able to find work, solid middle class jobs are still disturbingly scarce. Sluggish wage growth also means the Federal Reserve, which is feeling pressure to raise interest rates, may have extra breathing room, since rising wages are a key driver of inflation.

Here’s the wage growth trend line, fyi:

ECI
TIME Companies

Shake Shack Prices IPO Above Expected Range

A Shake Shack restaurant in New York City.
A Shake Shack restaurant in New York City. Bloomberg—Bloomberg via Getty Images

Shares will begin trading on NYSE Friday under the symbol "SHAK"

Shake Shack, the popular burger chain founded in New York City, priced its initial public offering at $21 a share late Thursday, according to a company press release.

The price is above the range the company had anticipated as late as Wednesday, when it raised its expected IPO price range to $17 to $19 a share from a previous range of $14 to $16.

The company, founded in 2004 by restaurateur Danny Meyer, filed for its IPO at the end of December, with the New York Stock Exchange under the symbol “SHAK.” The chain’s stock will begin trading on NYSE Friday.

Also on Wednesday, the burger chain increased the number of shares it plans to sell, from 5 million shares to 5.75 million. At the new price, the company’s initial offering could bring in more than $120 million.

Previous reports have said Shake Shack could be aiming for a $1 billion valuation in the IPO.

As Fortune has reported, Shake Shack recorded about $79 million in sales over the first nine months of 2014. The chain has 63 locations around the world, including restaurants in London and Dubai, though annual sales volume at the chain’s seven Manhattan locations is about 50% higher than at its other locations.

In 2014, Shake Shack opened 10 new company-operated U.S. locations and a dozen new international licensed restaurants. The company has said it could eventually grow to 450 locations.

J.P. Morgan and Morgan Stanley are among the banks underwriting the company’s IPO.

– Reuters contributed to this report

(This story has been updated)

This article originally appeared on Fortune.com

MONEY Economy

Fourth-Quarter Numbers Not As Strong As Hoped

On Friday, economists got a fresh read on the U.S. recovery: The federal government reported fourth-quarter gross domestic product growth slowed to 2.6% from the third-quarter’s 5%.

The good news is few economists expected to outstrip the third-quarter’s robust number. The bad news is slower GDP growth wasn’t the only disappointment. In fact, many experts were looking past that headline number at something else: the Employment Cost Index.

The Labor Department index, a measure of overall employment costs, including wages but also benefits like health care, rose 2.2% year over year for the fourth quarter. It had grown 2.3% in the fourth quarter, and economists had been hoping to see it meet or exceed that mark.

That it failed to do so suggests wage growth — largely seen as the last missing piece of the recovery — still hasn’t picked up as much as we would all like. The upshot is, while Americans seem to be able to find work, solid middle class jobs still appear to be scarce. Sluggish wage growth also means the Federal Reserve, which is feeling pressure to raise interest rates, may have extra breathing room, since rising wages a key driver of inflation.

ECI

 

 

MONEY Tech

Why Apple Needs Its New Watch to Be a Huge Success

Apple Watch
Stephen Lam—Reuters

The pressure is on.

The market may have loved Apple’s APPLE INC. AAPL -1.4634% blowout quarterly report on Tuesday afternoon, but this doesn’t take any of the pressure off of April’s highly anticipated Apple Watch. If anything, the report actually places even more weight on the tech giant’s initial foray into wearable computing.

Let’s go over some of the reasons why Apple needs its new watch to be a smashing success.

1. There is too much riding on the iPhone

Apple’s revenue during the holiday quarter may have soared 30%, but back out the iPhone and sales actually slipped 7%. The iPhone is hot — and that’s awesome — but it’s also 68.6% of the revenue mix at Apple.

Apple needs to earn its innovator wings again. With iPad sales plummeting and the iPod no longer even worthy of being its own line item in Apple’s quarterly summary data table it’s time for something new to take the weight off of the iPhone.

2. The iOS newbies are ripe for the picking

The only thing better than Apple selling a record 74.5 million iPhones is that a record number of them are also new to the tech giant’s mobile platform.

“We had the highest number of customers new to iPhone last quarter than in any prior launch,” CEO Tim Cook boasted on Tuesday night. “The current iPhone lineup experienced the highest Android switcher rate in any of the last three launches.”

In other words, there are a lot of people making their initial investments in Apple products. The long overdue move to introduce larger screens to keep up with the competition is predictably paying off by eliminating their objections to going Apple. This leaves them ripe to to absorb other Apple products, and it’s not iPads or iPods. Mac sales should benefit, but the no-brainer is an accessory that works in cahoots with the phone itself. Yes, we’re talking about the smart watch.

3. Let’s bring back the halo effect

It’s not a coincidence that the Mac experienced a resurgence shortly after the 2001 introduction of the iPod. The media player worked with Macs and PCs, but it made Apple desktops and laptops cool again. Don’t be surprised if we see this happen with the Apple Watch.

Ultimately the purchase of an Apple Watch is a commitment to iOS. It’s unlikely to work with Android or other devices, cementing an iPhone user in place. Wireless carriers make it brutally easy to switch sides every two years, but someone buying an Apple Watch is that much more invested to sticking to the iPhone at the next upgrade cycle.

4. Show Google how wearable computing is done

It’s not a surprise to see Google GOOGLE INC. GOOG 4.6724% backpedalling from Google Glass. The search giant suspended sales of its high-tech specs to developers. They cost too much. They were too creepy. They weren’t fashionable enough.

However, this also opens the door for Apple to make a splash by showing how wearable computing can be fashionable and useful. Skeptics will argue that rival smart watches have failed, but that hasn’t deterred Apple in the past. There’s always time to get it right.

5. Apple can use a new winner

The only two product lines posting improving sales this holiday season were iPhones and Macs. We’re talking about the smartphone that it introduced nearly eight years ago and its legacy computer business that’s obviously even older.

The iPad has been shrinking for a year, joining the iPod that’s been diminishing in popularity for years. Apple TV seems to be holding its own, but it’s not substantial enough to merit being singled out as a category. It’s lumped together with the iPod in the “other products” catchall that posted an overall decline.

Apple can use another winner. The Apple Watch won’t lend itself to the same upgrade cycle as the iPhone. There won’t be too many people buying a new one every two years. However, if it succeeds it will give Apple a more recent product introduction to brag about.

MONEY Greece

What the Turmoil in Greece Means for Your Money

The head of radical leftist Syriza party Alexis Tsipras waves to supporters after winning the elections in Athens January 25, 2015. Tsipras promised on Sunday that five years of austerity, "humiliation and suffering" imposed by international creditors were over after his Syriza party swept to victory in a snap election on Sunday.
The head of radical leftist Syriza party, Alexis Tsipras. Marko Djurica—Reuters

Expect lower stock prices.

Faced with an apocalyptic unemployment rate of 28%, voters in Greece have drawn the line on austerity measures that have mired the country in a crisis rivaling that of the Great Depression. In the worst case, the move could lead to Greece’s exit from the European monetary union. In the best case, it will produce much-needed debt relief for the country’s ailing economy. But either way, it’s prudent to assume the turmoil will roil equity markets both here and abroad.

The issue came to a head earlier this week when Greece’s “radical left” Syriza party won a plurality of votes in the latest election. Led by 40-year-old Alexis Tsipras, Syriza campaigned on a platform to ease the “humiliation and suffering” caused by austerity. This includes debt relief and rolling back steep spending cuts enacted by Greece’s former government in exchange for financing from the International Monetary Union and other members of the European Union.

To say Greece has paid dearly for these cuts would be an understatement. The consensus among mainstream economists is that austerity during a time of crisis exacerbates the underlying issues. We saw this in Germany after World War I when France and Great Britain demanded it pay colossal war reparations. We saw it throughout Latin America following the IMF’s structural adjustments of the 1980s and 1990s. And we’re seeing it now in Greece and Spain, where unemployment has reached levels not seen in the developed world since the Great Depression.

The problem for Greece is that Germany and other fiscally conservative European countries aren’t sympathetic to its predicament. They see Greece’s travails as its just deserts. They see a fiscally irresponsible country that exploited its membership in the continent’s monetary union in order to borrow cheaply and spend extravagantly. And they see an electorate that isn’t willing to accept the consequences of its government’s actions.

To a certain extent, Greece’s critics are right. Over the last decade, its debt has ballooned. In 2004, the country’s debt-to-GDP ratio was 97%. Today, it is 175%. This is the heaviest debt load of any European country relative to output.

It accordingly follows that the European Union stands once again at the precipice of fracturing. If the Syriza party sticks to its demands and Greece’s neighbors won’t agree to relief, then one of the few options left on the table will be for Greece to exit the monetary union and abandon the euro. Doing so would free the country to pursue its own fiscal and monetary policies. It would also almost inevitably trigger a period of sharp inflation in a reinstituted drachma.

This isn’t to say global investors should be petrified at the prospect of even the most extreme scenario — that of Greece abandoning the euro. In essence, the euro is nothing more than a currency peg that fossilized the exchange rates between the continent’s currencies in 2001. By going off it, Greece would essentially be following in the footsteps of the Swiss National Bank, which recently unpegged the Swiss franc from the euro after a drop in the latter’s value made maintaining the peg prohibitively expensive.

A more complicated question revolves around the fate of Greece’s sovereign debt. Seceding from the monetary union won’t eliminate its obligations to creditors. It likely also won’t change the fact that the country’s debt is denominated in euros. Thus, if Greece were to exit the euro and experience rapid inflation, the burden of its interest payments would get worse, not better. This would make the prospect of default increasingly attractive if not necessary in order to reignite economic growth.

But investors have shouldered sovereign debt repeatedly since the birth of international bond markets. Just last year, Standard & Poor’s declared that Argentina had defaulted after missing a $539 million payment on $13 billion in restructured bonds — restructured, that is, following the nation’s 2002 default. Yet stocks ended the year up by 11.5%. The same thing happened when Russia defaulted in 1998. Despite triggering the failure of Long Term Capital Management, a highly leveraged hedge fund that was ultimately rescued by a consortium of Wall Street banks, stocks soared by 26.7% that year.

Given all this, the biggest impact on investors, particularly in the United States, is likely to make its way through the currency markets. When fear envelopes the globe, investors flee to safety. And in the currency markets, safety is synonymous with the U.S. dollar. Over the last year, for instance, speculation about quantitative easing by the European Central Bank, coupled with the scourge of low oil prices on energy-dependent economies such as Russia and Mexico, has increased the strength of the dollar. This will only grow more pronounced if the U.S. Federal Reserve raises short-term interest rates later this year.

The net result is that American companies with significant international operations will struggle to grow their top and bottom lines. This is because a strong dollar makes American goods more expensive relative to competitors elsewhere. Consumer products giant Procter & Gamble PROCTER & GAMBLE COMPANY PG -1.6108% serves as a case in point. In the final three months of last year, P&G’s sales suffered a negative five percentage point impact from foreign exchange. As Chairman and CEO A.G. Lafley noted in Tuesday’s earnings release:

The October [to] December 2014 quarter was a challenging one with unprecedented currency devaluations. Virtually every currency in the world devalued versus the U.S. dollar, with the Russian Ruble leading the way. While we continue to make steady progress on the strategic transformation of the company — which focuses P&G on about a dozen core categories and 70 to 80 brands, on leading brand growth, on accelerating meaningful product innovation and increasing productivity savings — the considerable business portfolio, product innovation, and productivity progress was not enough to overcome foreign exchange.

With this in mind, it seems best to assume revenue and earnings at American companies will take a hit while Europe works toward a solution to Greece’s problems. In addition, as we’ve already started to see, the hit to earnings will be reflected in lower stock prices. There’s no way around this. But keep in mind that we’ve been through countless crises like this is in the past, and the stock market continues to reward long-term investors for their patience and perseverance.

TIME energy

When Will Oil Markets Find a Bottom?

No one really knows the answer, but the data suggests that prices will find a bottom as soon as this balancing is felt by the market. Or not

Remember the Sesame Street song?

One of these things is not like the others,
One of these things just doesn’t belong,
Can you tell which thing is not like the others
By the time I finish my song?

OK. Which curve on this chart is not like the others?

EIATop15LiquidsProducingCountries
Oilprice.com

It’s the U.S. and Canada’s oil production curve over the past several years.

That’s why oil prices have fallen: too much oil for the demand in the world. The tight oil from North America is the prime suspect in the production surplus that’s pushing down oil prices.

Now that you know the answer, let’s talk about IEA’s January report that was released. Here are my main takes from the report:

1. The fourth quarter 2014 supply surplus was 890,000 barrels per day (see the chart below). That is the difference between supply and demand. We can argue about whether it was mainly supply or mainly demand-I’ve stated my belief that it’s mostly supply-but that’s the difference between them. That is why oil prices are falling.

2. This surplus amount is 170,000 barrels per day greater than in the previous quarter.

3. Demand in the first half of 2015 will be 900,000 barrels per day lower than in the fourth quarter (see the second chart below). 1st half demand is usually lower than 2nd half but that means that prices could fall again.

4. 3rd quarter 2015 demand will increase by 1,530,000 barrels per day and 4th quarter demand will increase another 420,000 barrels per day. That is a lot and would take demand to record highs. This should go a long way towards moving prices higher.

IEAWorldLiquidsSupplyDemand
Oilprice.com
IEADemandForecast2015
Oilprice.com

 

Now, these are only estimates and IEA is notoriously wrong in their forecasts but that’s what we have to work with. They don’t estimate production which is too bad but the report says that 2015 production is now revised down 350,000 barrels per day from previous estimates. IEA expects that most of that will happen in the 2nd half of 2015 after North American tight oil production starts falling.

So, where does that leave us? The problem is mostly about supply but demand has to increase if we’re going to fix the surplus problem in 2015 because supply is not expected to fall that much.

I think this means that prices will increase in 2015 but not a lot unless something else happens. That something else will probably be an OPEC and Russia production cut in June after the next OPEC meeting.

Remember, the supply surplus in the 4th quarter of 2014 was less than 1 million barrels per day. OPEC can easily accommodate this and has made bigger cuts as recently as 2009.

Some geopolitical crisis could also happen in the coming year and that might add $20/barrel or so. Negative things for a price increase could also happen like demand not growing as much as IEA forecasts or production not falling enough.

When do oil prices stop falling? No one knows and this data doesn’t have enough resolution much less reliability to help answer the question.

EIA, however, may offer some help here. EIA publishes monthly world data and, in the chart below, they show supply and demand in approximate balance for November and December of 2014.

EIASupply&Demand
Oilprice.com

That may signal that prices will find a bottom as soon as this balancing is felt by the market. Or not.

This article originally appeared on OilPrice.com.

Read more from Oilprice.com:

MONEY

Fed Holds Rates Steady as Economic Plot Thickens

The Federal Reserve has said it won't raise rates before summer. But the economy picture is no less complex as the date approaches.

The Federal Reserve wrapped up a two-day meeting in Washington Wednesday, leaving short-term interest rates unchanged at near historic lows.

The move was widely expected: The central bank indicated as recently as December that investors weren’t likely to see a rate hike before summer. But the Fed’s actions were being closely watched nonetheless. With the summer deadline now two months closer, recent moves by the European Central Bank to bolster the continent’s economy have complicated the Fed’s upcoming choice.

The upshot is that for now U.S. consumers should be able to rest assured. Ultra-low interest rates mean borrowing costs for mortgages and other loans are unlikely to climb dramatically. But investors won’t have it so easy: Stock and bond traders will continue to fret about U.S. and European officials’ decisions, meaning more volatility like the sharp drop in Treasury yields (and rise in bond values) that took place earlier this month.

The Fed’s last meeting took place in mid-December amid feelings of increasing economic optimism. The U.S. economy had logged 3.9% GDP growth in the third quarter and the November jobs report was one of the best in months. That’s largely continued. Throw in an assist from cheap gas, and it’s no surprise the President Obama felt safe bragging about the ecomony in last week’s State of the Union.

In short, many Americans are beginning to feel like things are normal again. That’s usually the signal for the Federal Reserve to return interest rates to a more regular footing. Raising rates can slow economic growth — that’s why the Fed doesn’t want to move to soon. But keeping them low can stoke inflation. At 1.6%, well below the Fed’s 2% target, that’s not an immediate problem. The worry is that once inflation starts to rise, it can quickly get out of control.

The Fed’s decision is so tough this time around because it took such extraordinary measures to prop up the economy in the wake of the Great Recession. While so far the Fed’s strategy seems to have worked, no one likes being uncharted territory. Fed officials may feel some pressure to return monetary policy to something that feels normal.

One big problem, however, is that even as the U.S. economy has improved, much of the rest of the world continues to lag. Last week struggles in Europe prompted the ECB, Europe’s equivalent of the Fed, to undertake some extraordinary actions of its own, committing to buy tens of billions of dollars in debt each month in a new bid to stimulate the continent’s economy.

With the global economy so intertwined, the Federal Reserve has to worry weakness and instability overseas could put a drag on otherwise healthy U.S. economic expansion. In particular, the ECB’s move, the equivalent of printing billions of Euros, is likely to weaken the common currency against the dollar. That will make it more expensive for U.S. companies to export their goods — ultimately hurting profits and also providing another check on U.S. inflation.

The upshot is that if the Fed was feeling ready to act sooner rather than later, the situation overseas may be giving it second thoughts. Of course, the Fed has given itself until summer to decide. So it’s got some breathing room, if not quite as much as it did in December.

But in the meantime don’t expect jittery traders to sit tight. The Dow dropped 100 points after the Fed’s announcement from 17,452 to 17,319, while Treasury yields fell as bonds rallied. You can expect more of that kind of drama.

MONEY

The Most Amazing Thing About Apple? It Still Looks Cheap

Beats headphones are sold along side iPods in an Apple store in New York City.
Beats headphones are sold along side iPods in an Apple store in New York City. Andrew Burton—Getty Images

Despite another blowout quarter, Apple shares are still trading at less than 15 times earnings, which is a bargain for a top-flight tech company.

It’s hard to catch people by surprise when you’re already the center of attention. But with the help of strong holiday sales and another hit iPhone, that’s just what Apple did on Tuesday.

The Cupertino, Calif., gadget maker said sales jumped nearly 30% in its fiscal first quarter to a whopping $75 billion. Wall Street Analysts polled by Fortune had expected an increase of only 20%.

What’s remarkable is that, despite the hype, it’s not hard to make the case that Apple APPLE INC. AAPL -1.4634% shares, up about 8% to $118, are reasonably priced. Here’s our investment case:

The heart of the business: More than 90% of Apple’s revenue last quarter came from hardware sales—69% from iPhone sales alone. But if hardware is what Apple sells, it’s not what the company markets. “Apple’s main product is an experience,” tech analyst Neil Cybart told Money magazine last month. “They look at all of their products as taking away the complicated part of technology so the users can feel like they have more control over their lives.”

Apple aims to build a world in which you’ll own Beats by Dr. Dre headphones, wear an Apple Watch, buy coffee with the Apple Pay payments system, and make hands-free phone calls via Apple CarPlay. With all those products interlinked and running on Apple’s iOS software, you’ll rely on the ecosystem for daily tasks, making it a hassle for you to buy your next phone or tablet from anyone other than Apple.

So what’s the risk? Apple has a hit with the iPhone 6 and 6 Plus, in all selling 74 million smartphones last quarter. Indeed, as TIME recently reported, the iPhone 6’s success has cut into Android’s smartphone market share in the U.S. for the first time since September 2013.

But the company isn’t particularly good at ­enticing the owner of one Apple product to purchase another, says Consumer Intelligence Research Partners’ ­Michael Levin.

For instance, only 28% of iPhone owners have an Apple computer, and less than half of them own a tablet, says CIRP. Sales for the iPad have fallen 22% over the past year, acknowledges Apple. But CEO Tim Cook, noting that the company has sold more than 250 million iPads over the past four years, told investors in October that he’s “very bullish on where we can take the iPad over time.”

Why it’s still a value: Apple enjoyed a banner year in 2014. Spurred by sales of the latest iterations of the iPhone and anticipation of the Apple Watch’s release in April, the company’s stock has risen nearly 50% since the start of 2014.

Despite that gain, Apple’s price/earnings ratio, based on projected profits, is just 14. That means the stock trades at an 11% discount to the S&P 500 technology index, even though the company’s earnings are growing 32% faster than the average big tech stock’s.

Apple’s low valuation stems from factors such as investors’ doubts that a company its size can grow as fast as smaller tech firms, along with uncertainty that Apple will keep making products that are both popular and profitable.

That said, Apple is still the best company by far at creating exciting technology that people want to buy. Plus, signs point to an ever-increasing dividend from the stock, which now yields 1.6%; a larger payout can be easily covered by Apple’s $178 billion cash reserves.

This story is adapted from Apple, Amazon, or Google: Who Will Win the Battle of the Tech Titans? in the 2015 Investor’s Guide in the January-Feburary issue of MONEY

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