Could Apple be worth $1 trillion? Itâ€™s conceivable. The $347 billion maker of iPhones and iPads became â€” if only briefly â€” the most valuable company in the United States when it overtook Exxon Mobil on Tuesday.
Yet Appleâ€™s sales have been surging 80 percent a year, and its profit faster. Whatâ€™s more, it trades roughly in line with the growing stock market â€” and at less than half the price-to-earnings multiple it fetched in 2006, when revenue growth was much slower.
Apple now trades at about 11 times estimated earnings for the fiscal year ending September 2012. The Standard & Poorâ€™s 500-stock index is valued at about 10 times next yearâ€™s profit. But Appleâ€™s sales growth is nearly 10 times faster than that of the average company. Apple also holds $76 billion of cash and investments.
To get at this dissonance another way, consider Appleâ€™s price-to-earnings growth ratio. This hints at the price of growth by dividing a companyâ€™s price-to-earnings ratio by its projected percentage earnings growth. A smaller figure suggests a company is cheaper. Appleâ€™s is 0.2. Thatâ€™s low compared with growth darlings. Chipotle Mexican Grill, the burrito purveyor, for instance, comes in at 2.1, and Salesforce.com at 13.2. Pandora Media and LinkedIn arenâ€™t even expected to make money soon.
Alternatively, put Apple on the same P/E multiple it traded on in 2006, and it would be worth almost $900 billion. A premium for todayâ€™s faster growth could get it to $1 trillion. Apple canâ€™t be so cheap just because Steven P. Jobs, the chief executive, is in bad health.
True, Apple already sells more each quarter than it did in all of fiscal 2007, and it takes more and more success to move the needle. Growth could easily slow. Yet the smartphone and tablet markets are young, the companyâ€™s customers show remarkable fidelity and areas like television are ripe for new gadgets. Moreover, Appleâ€™s return on equity is almost twice what it was in 2006, suggesting it has pricing power.
Maybe investors simply canâ€™t fathom a company so large. A $1 trillion Apple would be the equivalent of adding all of Microsoft, Google, Intel, Amazon and more to Appleâ€™s current market value. Perhaps Apple is correctly priced, the market too expensive and growth stocks grotesquely so. But something doesnâ€™t add up. In relative terms, Apple should be worth far more.
A Haven With Warts
Londonâ€™s international reputation has suffered another blow. Images of fire and looting across the capital, beamed around the world, raise questions about the governmentâ€™s ability to keep the city safe. Combined with the aftermath of the financial crisis, itâ€™s another factor that could make London less attractive for mobile workers and investors.
The British capital has a haven status that is peculiar for the factors working against it. Heathrow Airport may not be as bad as it once was, but still causes frustration for international travelers. Londoners generally must allow an hour to get from A to B within the city. Property prices are sky-high. Personal taxation has become more onerous.
Nevertheless, London remains a desirable place to live, work and invest. Superprime residential property has become a financial asset in its own right â€” a relatively safe store of value for the wealthy of the Middle East, Russia and Asia.
Widespread disorder, however, could prompt calls for the government to soften its austerity program. That would be the wrong policy response. The reality is that Britain simply has little choice but to stay the course. It canâ€™t afford to put its triple-A credit rating in jeopardy. But after restoring order, one priority should be to repair the image of London globally.
No one of course need organize a charity collection for the international elite, whose prospects are the polar opposite of those of the rioters. Indeed, their visible wealth and prosperity are a provocation to the youths feeling excluded from even remotely similar opportunities. Thatâ€™s a challenge for longer-term social and economic policy.
But London would regret failing to recruit talented individuals. There will be those who are this week weighing job offers based in London and other financial centers. The scenes on TV may be the marginal deciding factor in the decision. Boris Johnson, Londonâ€™s mayor, is at last returning from vacation. He has a city to defend.