The striking red line in the chart below is the ultimate manifestation of our boiling frogs metaphor. It is flat as a board and depicts the net income of the Almighty Apple Inc since September 2012. The embedded annualized growth rates (CAGRs) compute to, well, snoozers:
- Eight-year: +4.1%;
- Three-year: +5.9%;
- Two-year: -1.7%;
- One-year: +3.9%
So the boiling part is self-evident. Apple’s market cap has exploded from $625 billion to $2.2 trillion during that period, representing a sizzling 17.0% annual rate of price gain, but fully 83% of that $1.575 trillion gain in market cap was due to PE multiple expansion, not higher profitability.