Apple's stock has fallen by a third since September 2012, wiping out $238 billion in market cap. Some context for that mind-blowing figure. The total stock value of Walmart, the biggest company in the United States by number of workers, is $242 billion. So, in five months, Apple has shed a Walmart.
James Surowiecki's New Yorker column asks why. In tech world dominated by phones and tablets, Apple makes the world's two best-selling phones. It's the global leader in tablets, by far. And it's gobsmackingly profitable. According to one 2012 study, Apple took 69 percent of the world's mobile-phone profit. "That doesn't sound like a company whose stock deserves to trade at a price-to-earnings ratio well below the market average," Surowiecki writes.
Maybe. Or is Apple exactly the sort of company that should trade at a low PE ratio?
It's useful, for these purposes, to compare Apple and Amazon. Apple turns absurd profits in a highly competitive industry. Amazon barely turns a profit in an industry where investors deem it a quasi-monopoly. In the eyes of Wall Street, that's why Amazon is special and Apple isn't. If Apple is a glimmering castle city surrounded by invading hoards, Amazon is like a subsistence village surrounded by treacherous mountains, three deserts, and a dragon.* Its profits might be low, but at least they're safe.
Apple's sky-high earnings are a bulls-eye for competitors like Samsung that can build almost-as-good-or-better products at cheaper price points. To compete, Apple can innovate new features (which is risky: Siri and Maps were kind of disasters) or lower the price. Lower prices mean lower future profits. Lower future profits suggest lower-than-average price-to-earnings ratios.
In a nutshell, that's why Apple's doubters aren't as stupid as the company's fan boys often write.
Here's the flip side. Corporations are people. But seriously, they are. Even without Steve Jobs, the executive and engineering core of Apple is largely the same one that built miracle after shimmering miracle in the last decade. Past iPhones are no guarantee of future iTelevisions, or however that saying goes. But if you think the tech wars will eventually be won by the team that produces the best-looking, best-selling, sleekest-working consumer gadgets, it would be pretty wild to think that team is anywhere but right where we last saw them in Cupertino.
* No, I don't consider Amazon to be tech's equivalent of a subsistence village: Its products are astounding. Its the quarterly profits that are meager.