Consolidated Edison, Inc. (ED), Apple Inc. (AAPL), Colgate-Palmolive Company (CL): 2 Types of Companies Deserve High Valuations

A company can make up for uncertain growth if it’s enjoying blistering growth, as the odds of a blowout offset the odds of a stumble. But Apple Inc. (NASDAQ:AAPL) isn’t in that cycle anymore, at least for its existing products compared with previous years. It’s already so large and commands such a large share of its markets that future growth rates are very likely to fall. Fourth-quarter net income was virtually flat over the previous year. S&P’s Capital IQ shows average analyst estimates call for earnings growth of 15% from 2013 to 2014. That’s excellent, but it’s a fraction of what the company produced in previous years. There is no shame in seeing epic growth rates fall back to Earth. It is as inevitable as aging. But markets should — and will — value the company accordingly.

None of this is a bearish call. Apple Inc. (NASDAQ:AAPL) could be a great investment at current valuations. Indeed, Altria Group Inc (NYSE:MO) has produced sensational shareholder returns not despite a low valuation, but specifically because of it.

But for Apple investors, don’t hold your breath waiting for big earnings-multiple expansion to something above the market average.

The article 2 Types of Companies Deserve High Valuations originally appeared on Fool.com and is written by Morgan Housel.

Fool contributor Morgan Housel owns shares of Altria Group (NYSE:MO) and Consolidated Edison. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple.

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