Apple (AAPL) finished this month with a $3 trillion market cap and an enterprise value of 7.883X revenue at a time when its revenue is in decline. This isn't AAPL's highest month-end enterprise value/revenue ratio in history. At the end of August 2020, AAPL had an enterprise value of 8.131X revenue when the company was still growing.
Surprisingly, the S&P 500 only has one gold mining stock Newmont Mining (NEM) and it is one of the smallest stocks in the S&P 500. Investors who buy S&P 500 Index Funds believe they are getting exposure to a diversified group of stocks, when in reality... they are getting overexposed to overvalued technology stocks with practically no exposure to undervalued gold mining stocks. The index fund/passive investing bubble is the main reason AAPL has gotten to such an extraordinarily high multiple at a time when gold mining stocks are trading at below average multiples.
At the end of August 2020 when AAPL had its record high ev/revenue ratio of 8.131, NEM had an ev/revenue ratio of 5.356. AAPL's multiple was 1.518X higher than NEM.
Today, AAPL has an ev/revenue ratio of 7.883 vs. NEM trading with an ev/revenue ratio of 3.076. AAPL's current multiple is 2.563X higher than NEM, which is by far their largest difference in history. It is more than 3 standard deviations above the mean (since 2007 when AAPL introduced the iPhone) of AAPL being valued at a 1.177X higher multiple than NEM.
To put this into perspective as to how extraordinarily overvalued AAPL is compared to NEM:
68.27% of the time their difference in multiples should be within 1 standard deviation of the mean. This means 68.27% of the time, AAPL should trade with an ev/revenue ratio that is between 0.779X and 1.576X the ev/revenue ratio of NEM.
95.45% of the time their difference in multiples should be within 2 standard deviations of the mean. This means 95.45% of the time, AAPL should trade with an ev/revenue ratio that is between 0.38X and 1.975X the ev/revenue ratio of NEM.
AAPL finishing this month with an ev/revenue ratio that is 2.563X higher than NEM or more than 3 standard deviations above the mean is something that should only happen 0.27% of the time.
If NEM outperforms AAPL in the upcoming months (mathematically the odds are extremely high) stocks like Augusta Gold (TSX: G) and North Peak Resources (TSXV: NPR) are likely to make 10-20X larger gains than NEM.
Past performance is not an indicator of future returns. NIA is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This message is not a solicitation or recommendation to buy, sell, or hold securities. NIA's President has purchased 224,200 shares of G in the open market and intends to buy more shares. NIA's President has purchased 60,000 shares of NPR in the open market and intends to buy more shares. This message is meant for informational and educational purposes only and does not provide investment advice.
Preparing Americans for Hyperinflation
