Judging by the fundamentals—things like revenue, earnings, assets, cash flow, profit margins, and growth—Apple had a very good year.
However shares in the world’s most valuable company finished 2015 down 4% from the beginning of the year and off nearly 22% from their 52-week high.
Why the disconnect?
In my comment stream yesterday, a longtime reader who calls himself Merckel spoke for many frustrated shareholders when he boiled it down to six reasons:
- Heavy option activity. Institutions are content with making bank off of selling lotto tickets (options) to weekly gamblers. Approximately 90% of all Apple (AAPL) options expired worthless in 2015. The pattern is so reliable that it acts as a talisman for stock direction. Thankfully, the option activity is beginning to moderate, which is promising for Apple shareholders. At least in Las Vegas, one knows the odds of losing one’s shirt; Apple gamblers are reduced to wearing only their shorts.
- Journalism’s broken business model. Clickbait headlines about Apple dominate and are mostly negative. Do not underestimate the power of advertising dollars as the root of much of Apple’s negative press.
- CNBC. Retail investors are served a regular diet of fear, uncertainty, and doubt (see above). I give business news network CNBC its own slot for good reason: There are more than 40 analysts covering Apple. Most of those still working (heh) are bullish and have price targets well above today’s stock price, though a viewer of CNBC would never know it because the network’s version of “balance” is to give equal time to Apple bulls and Apple bears. That’s not balanced reporting. If CNBC covered man’s landing on the moon, they would no doubt find someone who claimed a hoax for “equal time.”
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WATCH: For more on Apple, check out the following Fortune video:
- Ignorance. The average retail investor doesn’t know a P/E ratio from a gym class. Accordingly, they listen to CNBC talking heads, many of whom rely on “channel checks” to divine iPhone sales despite Apple CEO Tim Cook’s warning that suppliers are a bad proxy for actual results.
- Wall Street myopia. Currently, Wall Street believes Microsoft (MSFT) has three times better prospects than Apple (based on relative P/E ratios). On what planet can anyone defend this conclusion? Microsoft has failed in mobile, is giving away Windows and new versions of Office have long ceased to be meaningful. The cloud business is a race to the bottom, and I’d hate to compete with Amazon’s cloud service since Amazon (AMZN) doesn’t have to make any profits.
- Perception. Apple’s iPhone business is winning spectacularly. But for the Street, it’s a Wall of Worry. Apple’s worldwide market share for the iPhone is approximately 14%. As Daniel Eran Dilger pointed out, Google’s (GOOG) Android is a feeding tube for new Apple customers. If Apple is too concentrated in iPhones, so is Starbucks (SBUX) selling coffee, Boeing (BA) selling planes, General Motors (GM) selling cars, etc. (the list is very long). Really now, has everyone purchased their last smartphone? Has everyone purchased their last car? The replacement cycle for smartphones would be the envy of the car business, an industry populated by over 20 brands competing for the same customer. By contrast, Apple has never been in a stronger position and its competitors have never been weaker. Yet, some auto manufacturers have a higher P/E ratio than Apple. More Alice in Wonderland in the stock market.
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“Any one of the above suggests the stock market is inefficient as hell,” Merckel concludes. “That all of the above apply produces a truly asinine Apple stock price.”
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Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple coverage at fortune.com/ped or subscribe via his RSS feed.
