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Cramer Questions Why Apple Trades At Valuation Discount To Procter & Gamble

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Cramer Questions Why Apple Trades At Valuation Discount To Procter & Gamble
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Does it make sense for a company like Procter & Gamble Co (NYSE: PG) to trade at a valuation premium to Apple Inc. (NASDAQ: AAPL)? The answer is obvious, according to CNBC's Jim Cramer

What Happened

Procter & Gamble's stock is trading at 17 times next year's earnings estimates. Its multiple product lines, including Bounty, Charmin and Puffs, face a "real challenge" in brand loyalty, Cramer said during his daily "Mad Money" show Wednesday. The company faces "risk extinction" if the brand loyalty attached to its products fades after an announced 5-percent price increase, he said. 

"Brand loyalty? An oxymoronic term in the traditional packaged goods industry," Cramer said.

Apple's satisfaction level for its products and the newest iPhone models are both in the high 90s, Cramer said. Apple boasts a level of brand loyalty which allows it to raise its iPhone average selling price by more than P&G's 5 percent — nearly 20 percent to be exact.

Why It's Important

Apple offers consumers an entire ecosystem where each product is linked to another, as opposed to Procter & Gamble, where "nobody links any of its myriad products with each other," Cramer said. Apple can better monetize its business, as evidenced by the 300 million paid subscribers who contributed to a 31-percent year-over-year increase in services revenue to $9.55 billion, he said. 

What's Next

Cramer said Tuesday that Apple's stock should be worth $300 per share over time as investors over time re-rate the stock's multiple higher to be at least in-line with other consumer packaged goods.

Related Links:

Wall Street Weighs In On Apple's Q3 Earnings Beat: Buybacks, Services, iPhone Demand In Focus

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Photo courtesy of Procter & Gamble.

Posted-In: CNBC Consumer Packaged Goods iPhone iPhone ASP Jim Cramer Mad MoneyMedia Best of Benzinga

 

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