The Futility of Apple Inc. (AAPL)’s Fundamentals

These are all entirely reasonable causes for concern. However, acknowledging it still doesn’t properly explain why Apple Inc. (NASDAQ:AAPL) is getting no respect in the market.

Worse doesn’t mean bad
Companies with worse figures than Apple Inc. (NASDAQ:AAPL) (even after considering the aforementioned risk factors) are still fetching much higher trading multiples than the iPhone maker. Even if gross margins continue declining and stabilize between 30% and 35%, those are hardly bad figures, even if they are worse than the unsustainably high levels of profitability of yesteryear.

Apple Inc. (NASDAQ:AAPL) is painfully confronting the Law of Large Numbers, since it can’t realistically be expected to continue growing at the same rate. Over the past five years, it’s posted an average revenue growth rate of 45%. At $165 billion in TTM sales right now, anything below $239 billion in sales over the next year will technically be less than that average.

Even Intel, a company that has a lower net margin and less promising growth prospects going forward, is fetching higher multiples than Apple Inc. (NASDAQ:AAPL). All of the concerns facing Apple Inc. (NASDAQ:AAPL)’s business combined still don’t make sense of the fact that Apple Inc. (NASDAQ:AAPL) is one of the cheapest stocks in the market. Apple Inc. (NASDAQ:AAPL) is now valued alongside grocery stores and department stores that are saddled with debt and plagued with razor-thin margins.

In fact, Apple Inc. (NASDAQ:AAPL) is now valued within the bottom 6% of the market, even as the company is still one of the greatest cash machines known to man.

Dramatic irony
Just to be clear, I’m fully aware of the irony of this article. I’m know I started by saying fundamental analysis is proving futile right now — and then proceeded to cite fundamentals. The distinction is that emotions and momentum are short-term factors, while fundamentals are the long-term Fool’s tools.

The greatest investment opportunities prove to be the ones where emotions dictate prices, specifically because they disconnect price from intrinsic value. At the height of the financial crisis, patient value investors who bought near March 2009 lows and held on for the wildly emotional ride were greatly rewarded.

Apple Inc. (NASDAQ:AAPL) is in anything but a financial crisis right now, but it is definitely facing crises of confidence, identity, and maturity. Patient value investors will be greatly rewarded again.

The article The Futility of Apple’s Fundamentals originally appeared on Fool.com and is written by Evan Niu, CFA.

Fool contributor Evan Niu, CFA, owns shares of Apple. The Motley Fool recommends and owns shares of Apple and Intel.

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