Why Apple is valued like an oil company

Price to earnings (P/E) ratio is usually a good metric of how excited about a company’s future the markets are, the bigger the number the better. Amazon is usually in the 100+ range because people are excited about where they’re headed. Contrast this with Exxon Mobile with a P/E of 9 or 10.

The market is saying there’s not going to be too many surprises with Exxon, so you’re pretty much just waiting for the cash to come up out of the ground.

Now let’s look at Apple. 

They’re at 10.5 – basically an oil company, whaaaa? You’re valuing the company that triggered at least two major computer revolutions at “extract junk out of the ground” levels? The company that made more profit last year than any company ever? I can’t stop thinking about why this is happening, here are my current theories:

Wall Street never bought Apple’s comeback

Most large investors are “biz people” in the stock photo kind of way. I don’t think they ever quite believed that Apple made a comeback, let alone started dominating Microsoft. In their world, we’re at most two quarters from Dell storming back and dominating the PC industry. “Supply chain optimization. Now that’s something I can get excited about!”

“Apple needs to make more things”

No other business, and almost no investors understand how Apple has so few products and yet is so successful. In their minds, this is a source of danger and weakness. After all, if the iPhone weakens, then I see a huge chunk of pie chart that’s going to get smaller. None of these people can possibly imagine that Apple is successful because they have so few products. That’s why we keep hearing the calls to produce cheaper laptops, Apple TVs, iPrinters, tote bags and bobble heads. How do we know for sure no one understands this? Apple is the most profitable company in the world, yet no other business has even tried to copy their product mix.

Also, you know how when you’re in a meeting and during the complicated bits everyone is quiet, and then when it comes time to pick a color for the logo, everyone chimes in with thoughts and suggestions? Apple’s products are like the color in the logo – everyone understands them so everyone has an opinion. Contrast that with HP - what do they make? Who knows. 4,000 different printers, a whole bunch of server things that someone in an IT magazine said “looked competitive”, some computers that look sad at Best Buy (but there’s a lot of choice there!). How do I even know what to be worried about with HP? I can only talk about what they make in generalities. With Apple however – “I’m worried about the iPhone.” Simple, easy.

Yes, there are threats to Apple’s business, but I can’t imagine that they’re so severe that they’ll essentially totally ruin their current business.

Conclusion

There’s no real conclusion here except that I don’t think investors really get technology. They don’t understand truly good and new things and how powerful they are. They think innovation is a word on a mug and a thing discussed in conferences at the Marriott. This is the bizarre thing about Apple, the only people that really get it are it’s customers.