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Why Is Apple Inc. (AAPL) so Cheap?

The market is also assuming Apple Inc. (NASDAQ:AAPL) is running into the law of large numbers. In 2012, Apple earned $42 billion in profit. To repeat this feat, Apple Inc. (NASDAQ:AAPL) has to replace declining margins in its other businesses — every single year forever. It’s like the company is on a treadmill where the bigger it grows the faster it must run to stay in place. Even to maintain its current profitability, Apple must create revolutionary hits on par with the iPod, iPad, and iPhone every few years.

This is in total contrast to Google Inc (NASDAQ:GOOG). Google doesn’t have to reinvent entire industries every year (though it might). The company’s search business is consistently profitable and will crank out cash flow year after year, barring no catastrophic changes in the technology landscape. Google Inc (NASDAQ:GOOG)’s earnings are visible three to five (dare I say 10) years out. I’m willing to pay a premium for that visibility.

Can I say the same about Apple Inc. (NASDAQ:AAPL)? Maybe iTV will reinvent the living room? Maybe iWatch will be a hit? But at the moment, we don’t even know for sure if the company is even working on these projects let alone if they will reshape the world. CEO Tim Cook has yet to deliver a blockbuster product and the market isn’t willing to pay a premium to say he will.

Foolish bottom line

So to the Apple bulls, what the market is assuming here sounds perfectly acceptable. Apple isn’t cheap but rather reasonably priced.

The article Why Is Apple so Cheap? originally appeared on

Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Apple Inc. (NASDAQ:AAPL) and Google. The Motley Fool owns shares of Apple and Google Inc (NASDAQ:GOOG). Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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