Basic Math Matters

Kate MacKenzie of Mac 360:

The company’s price to earnings ratio is among the strongest ever for a company Apple’s size. Numerical indicators say all is well and the future looks rosy.

So, what’s wrong with the stock’s price? Fear. Stock market analysts are a crazy, mixed up bunch of fickle and fruitcake-laden impostors who act more like 12-year-old girls at a slumber party.

Amazon loses big money and analysts call that a good sign of disruption. Google’s Android OS becomes the dominant smart phone OS in units, and analysts declare that ‘Android is winning.’ That, despite the fact that Amazon and Google do not make money with their wares.

I don’t think it’s incorrect to say that the abilities of Google and Amazon to offer products with next-to-zero profit margins is a disruptive ability. That they are able to do so while placating investors is equally talented. But I believe it is a complete myth that Apple cannot sell higher-priced, high-margin products against free or inexpensive products.

It, too, is possible that Apple’s market share will not significantly increase against free products (though it could, based on recent iPhone sales), but this does not matter. As far as investors should be concerned, Apple will continue to be an extremely healthy company with rising sales, even if other manufacturers are able to produce cheaper products which sell in greater numbers.

MacKenzie points this out in the final paragraph:

Customers are lining up to buy iPhones, iPads, Macs, and all the add-on wares they can afford. Apple’s real numbers and trends are solid and going upward and forward. Despite the executive boardroom adjustments, and desperate competitors giving away their products for free, the numbers still don’t lie.

Apple’s sales are extremely strong, and this will be a record-breaking first quarter for the company. But it’s imperative to understand that their company strategy isn’t — and has never been, since the “New Apple” of post-1997 — to necessarily sell the most of something. What matters is that they are able to sell boatloads of stuff at price points at which both investors and customers are happy.1

  1. Don’t get me wrong: we all want stuff for less. However, Apple has proved constantly that they are able to sell all of the products that they can produce quarter after quarter. ↥︎