Wall Street Hates Apple More With Every Passing Quarter

A blog about business and economics.
Jan. 24 2013 11:13 AM

Wall Street Hates Apple More With Every Passing Quarter

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If you want to understand why Apple "disappointing" Wall Street with the fourth-most-profitable quarter for any company ever is a big deal financially, take a gander above at the price:earnings ratio of three major high-tech companies.

This is a way of measuring how optimistic Wall Street is about a given company's future. Given two equally profitable companies, you're going to be more eager to own a slice of the one with the better growth potential. So the more optimistic the investor community is about a given company, the higher its PE ratio will be. And in Apple's case, as the company has grown and grown the markets have grown increasingly pessimistic about its future growth. A couple of quarters back, it started trading at a PE ratio below Microsoft's. A huge upside surprise might have killed off that pessimistic sentiment and persuaded people that they're making some kind of fundamental error, but instead Apple delivered a small downside surprise on earnings that led to a disproportionate fall in share prices and an even lower PE ratio.

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It's a little paradoxical because even after huge recent declines, Apple is still the most valuable company in America. But make no mistake—this is a company that Wall Street really doesn't like.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.