Why Apple Inc. (AAPL) Isn’t Cheap: Sony Corporation (ADR) (SNE), Google Inc (GOOG)

Google Inc (NASDAQ:GOOG)’s rich valuation is based on hope
The stock market is a discounting mechanism. That is, stocks trade today based on what the future is believed to hold. Apple’s share price has fallen because investors expect the company’s margins to decline, and sharply.

Shares of Smith & Wesson Holding Corporation (NASDAQ:SWHC), for example, tumbled on Wednesday despite the fact that the company had posted impressive earnings. Investors simply didn’t believe that the record gun sales the company had enjoyed in the fourth-quarter were likely to continue.

Meanwhile, Google Inc (NASDAQ:GOOG) shares have rallied based on hope. It’s no coincidence that Google Inc (NASDAQ:GOOG)’s price-to-earnings ratio has exploded in recent months: The media has been hyping up the future of the company.

Google Inc (NASDAQ:GOOG) glasses, self-driving cars, stores and a same-day shopping service have combined to generate a level of interest in the company reminiscent of Apple Inc. (NASDAQ:AAPL) at its peak. It’s also given investors a reason to hope that the company’s future earnings will far exceed the present.

Buy Apple Inc. (NASDAQ:AAPL) if a new product appears or capital is returned
When should investors hop back into Apple? The company could do two things to make its shares a buy once again.

Apple could introduce a new product. Such a product could give Apple a new cash cow to replace the iPhone. Those products could include the often-rumored iWatch or iTV, or perhaps something else entirely. But if Apple can innovate once more, its shares could rapidly turn around.

Apple could also admit that it’s become a mature tech company and return capital to shareholders. Apple will always have its die-hard enthusiasts. and there will be a market for its products even if they face significant competition. If Apple shows it’s committed to returning capital, it could be seen as a value play.

At any rate, investors should recognize the trends threatening Apple’s business. Unless the company can unveil a new product soon, or show a commitment to returning cash to shareholders, the stock could trade lower still.

The article Why Apple Isn’t Cheap originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

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