Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

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 Fool.com.

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.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.