Wall Street is starting to ask why.
With the worst of fiscal 2016 behind it and shares hitting record highs, the analysts who cover Apple have started to talk about the elephant in the trading room—namely, the fact that the stock they’ve been selling is priced, in Mark Andreessen‘s words, “like a steel mill on its way out of business.”
- BMO analyst Tim Long: Said “We continue to be confused by the valuation on AAPL shares… In every year over the past decade except 2008, the largest company has traded at a discount to the market.”
- Cowan’s Timothy Arcuri: Called Apple a “powder keg” set to explode, noting that the stock was trading “a touch below its normal discount vs S&P 500.”
What, exactly, is a “normal” discount?
That’s hard to say. BMO’s Long took a stab at an answer, comparing the relative valuations of the four largest-cap stocks—GE, Microsoft, Exxon Mobil and Apple—over the past 20 years. The discount, it turns out, is a relatively recent phenomenon, unique to Exxon and Apple:
Click to enlarge.
Microsoft, at its height, carried Amazon-size premiums, trading 140% above the average S&P 500 P/E ratio. Apple, at its low point last summer, was trading 53% below the S&P 500. See chart:
Click to enlarge. Not seeing the charts? Try the website.
More than a dozen analyst have raised their price targets in the past month on the strength of the next generation of iPhones. I’m waiting to see if they also raise their multiples.