In any industry you will find companies whose fortunes are linked. I follow Apple (AAPL) and two British companies whose success has been largely predicated on Apple’s. A good day for Apple is usually followed by a good day for the Brits when London opens the next morning. And, conversely, an Apple hiccup seems to cause a sympathy burp in London.
The companies are ARM (ARM) and Information Technologies Group (IMG). Neither ARM nor IMG are wholly dependent on Apple and they have thriving business with other tech companies. But to some extent their fortunes are linked. Apple is an investor in both and that is what led me to them in the first place—on the basis that if Apple thinks there’s potential there must be something in it.
Dig deeper, though, and there is a massive difference in the market’s views of these three companies, one monster and two relative minnows. The two British companies enjoy high price/earnings (P/E) ratios while Apple, valued at $365bn, is saddled with a modest figure that would better suit a purveyor of toilet cleaner. A high-tech P/E this is not.
ARM (value $12.79bn) and IMG ($1.6bn) have P/E ratios of 82 and 52 respectively. That means investors expect stellar performance over the next few years. Apple, arguably the most successful company in the world, and certainly the second largest, suffers from a P/E of a mere 15.62. I can see no real reason for this discrepancy. If anything, Apple is the one company out of the three with stratospheric prospects over the next years. Whether it’s the Jobs effect or other factors, Apple remains a low-valued tech company in the eyes of investors. Pass me the Domestos.
Disclosure: MacFilos holds stock in Apple, IMG and ARM.