Apple's Record-Breaking Value: Hard to Reach, Hard to Keep
Fueled by a mountain of cash combined with excitement over upcoming products, Apple's value has reached new heights, making it the most valuable publicly traded company in history. How long it can stay at that peak, however, is anyone's guess. "Many companies whose total value was huge only 20 years ago, such as Microsoft, IBM and GE, have a total value smaller today," said Siegel+Gale's Russ Meyer.
08/21/12 8:37 AM PT
The stock market can't get enough of Apple, it would seem. On Monday the company's shares passed the US$664 mark, setting a new record as the most valuable publicly traded company in history. On Tuesday morning the legend continued: Apple's stock rose close to 1 percent, trading at $671.30 per share before hitting a mid-morning decline.
Apple is the tech industry's darling, its golden child. It would be easy to attribute Monday's events to merely its overall aura of financial invincibility.
Recent events that might have given Apple's stock an extra push, however, include the growing anticipation of its next iPhone, expected to arrive this fall, as well as a rumored iPad mini and a possible full-sized television.
What's at Work Here?
Then there's the matter of Apple's huge cash stockpile, Russ Meyer, global strategy director for branding firm Siegel+Gale, told MacNewsWorld.
Essentially, he said, "what people will pay for the product is relatively high, and Apple's costs are relatively low. Thus, a lot of cash being created."
More immediately, though, the rumored upcoming product launches have been driving Apple's stock price, he said. "Given Apple's track record of creating -- and recreating -- products that exceed customer needs, are different than the competition and create a simple, delightful experience, investors are anticipating Apple will do it again with these new product launches." Thus, he said, the price of the stock rises with the expectation of even more brand-driven cash being created.
How Long Can It Last?
It's unclear whether Apple can maintain such heights, especially if one accepts that the rumored products in its pipeline are indeed the driver behind the recent increases.
"The iPhone 5 and 7-inch tablets will face a lot more competition this time, and the iPhone 5, based on what has leaked out of Apple, had far less of Steve Jobs in it than expected," Rob Enderle, principal analyst with the Enderle Group, told MacNewsWorld. "I'm hearing it was basically built by committee, which suggests it may not meet expectations."
That means, he continued, that there is a lot of risk to investors who think Apple will maintain this valuation. Also, he added, he has his doubts about the "most valuable company in history" title. "If you adjust for inflation, you'll likely find firms like the original Standard Oil, before the market collapse, and even Microsoft were more highly valued at their peak."
Apple, though, "is clearly the most valuable company in recent memory," he conceded.
"It's hard to stay on top forever," Meyer added. "Many companies whose total value was huge only 20 years ago, such as Microsoft, IBM and GE, have a total value smaller today.
But, he added, while it may be true that inevitably Apple will be overtaken by some other company, it is harder to make a case that Cupertino's surge is fueled entirely by hype and hot air.
Apple's P/E ratio is actually relatively low (15.57) compared to the overall S&P 500 (16.1), Meyer said, as well as to other tech stocks like Facebook (68.51) or Amazon (291.73).
"Stocks in the midst of a bubble usually have a relatively high P/E ratio. This doesn't seem to be the case with Apple," he explained.
Best Ever Title Not Necessarily a Prize
Still, Apple may regret the day it was crowned "most valuable."
"The biggest problem with being the best ever is that you also have to maintain 'perfection,' which everyone knows is impossible, even if you are considered the 'best ever,'" Jeff Sica, president and chief investment officer of SICA Wealth Management, told MacNewsWorld.
"The greatest problem with Apple is that despite its monumental technological innovation of the past, it's what's next that counts. The innovative mind behind Apple, Steve Jobs, has passed, and since his departing, there has been limited innovation at Apple."
It will be only after Apple proves it can continue to innovate, instead of just rolling out new versions of established products, that they can justify their "best ever" designation, he said.