Apple 2.0

Covering the business that Steve Jobs built

An Apple chart for Mr. Market

January 31, 2012: 3:23 PM ET

Something is amiss when Apple's price per earnings per trailing growth approaches zero

Click to enlarge. Source: Asymco.com

"I want to scream every time I see or hear another one of those ridiculous claims that Mr. Market doesn't understand Apple (AAPL), doesn't respect it, doesn't get it, etc." an investment analyst named Marc Gerstein wrote in an unusually condescending Seeking Alpha post last week. "The ones who don't get it are those who act as if reading a section on P/E in a for-dummies book makes them expert in stock valuation, and take on enough hubris to think Mr. Market is unaware of Apple's low P/E."

Asymco's Horace Dediu begs to differ. "Everyone seems to have an opinion... for Apple's extraordinary low valuation," he wrote Tuesday in a post entitled Pricing Paradox. "Some explanations come in and out of fashion. Others are reliable old clichés. We've seen liquidity issues with large funds forced to sell, "too much cash", management transitions, an impending loss of mojo, share price too high to afford, "law of large numbers", and that old chestnut, competition. None of these satisfy."

The problem is that Apple's growth is so steady  and predictable that analysts like Marc Gerstein mistake it for a growth company. What Apple really is, Dediu maintains, is a serial disruptor of established markets, from music to PCs to cellular telephony.

"A disruptive company is inherently unpredictable," he writes. "Success and growth are unrewarded because there no understanding of the underlying causes of these phenomena and therefore there is no expectation of repetition."

Dediu laid out his case that the market's valuation of Apple is broken in a series of charts, culminating in the one copied above. You can see the rest here.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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