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.
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.
TODAY IN SLATE
The Right Target
Why Obama’s airstrikes against ISIS may be more effective than people expect.
The One National Holiday Republicans Hope You Forget
It’s Legal for Obama to Bomb Syria Because He Says It Is
I Stand With Emma Watson on Women’s Rights
Even though I know I’m going to get flak for it.
Should You Recline Your Seat? Two Economists Weigh In.
It Is Very, Very Stupid to Compare Hope Solo to Ray Rice
Or, why it is very, very stupid to compare Hope Solo to Ray Rice.
In Defense of HR
Startups and small businesses shouldn’t skip over a human resources department.