Apple Falls To Earth

It was just over a year ago that we celebrated Apple’s re-admittance to the esteemed Four Percent Club following a two-year hiatus (Chart). We speculated that given the brief membership of past Four Percenters and the law of large numbers, Apple was doomed to fall back to Earth. Little did we know that the publication of that skeptical commentary would coincide very closely with the firm’s market value peak.

From the dizzying heights of a $775 billon valuation on February 23rd, 2015, Apple’s market cap suffered a series of slides and hiccups, and eventually breached the $500 billion mark on May 12th, 2016. So, in just over 14 months, the value of Apple declined by the equivalent of one General Electric or two IBMs. Poof, gone. Looking back at the performance history of past Four Percenters, we probably shouldn’t be surprised by Apple’s rapid descent. Also, in brief periods of February and May of this year, Alphabet (Google to me and you) passed its Silicon Valley rival in market cap and held the title of most valuable publicly traded firm.

During this very same time span, as the overall market fluctuated down and then back up to where it started, Apple’s tech titan brethren experienced phenomenal performance. The four firms of Microsoft, Alphabet, Amazon, and Facebook added a combined $487 billion to their market caps. This performance divide has created an entirely new P/E multiple landscape for these firms. Apple, with a bank-like P/E ratio, now stands out in this group as a screaming value play (Table).

Has Apple’s Four Percent membership card been permanently revoked? History, it would seem, says yes. However, it’s tough to count out a firm that’s generated $225 billion in sales and $50 billion (4.7% of the S&P 500) in net income over the past four quarters.

© 2016 The Leuthold Group

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