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Is Apple destined for a lost decade?

Imagine waking up 10 years from now and Apple (NASDAQ: AAPL) has gone essentially nowhere. All that promise of continued iDomination fell completely short of expectations, and as a result, investors have become disillusioned with where Apple’s is headed next. Welcome to the Apple lost decade.

After all, the company has yet to prove that it can revolutionize entire industries without the contribution of Steve Jobs’ visionary genius. To this very day, Apple is still riding on the coattails of Steve’s vision, and it appears the company is milking that for all it’s worth. For better or worse, Apple shareholders are left reconciling this potentially stark reality, and are also stuck with Tim Cook as captain of the ship. Cook, who has been highly regarded as a top-notch operations man — a great asset for the company’s supply chain, mind you — but is he really the captain of the ship? Does he possess the same sort of vision Steve Jobs had? Unfortunately, the world is still waiting for this answer.

The longer the world waits, the longer Apple’s P/E remains compressed relative to the market, which ultimately perpetuates this cycle of under appreciation. Currently, Apple’s P/E is being compressed by more than 40% relative to the market’s current valuation. Does a company with the earnings potential of Apple deserve this sort of treatment? Well, if the company no longer thinks in terms of being revolutionary, investors may be in for another reality check.

Telltale signs
Although Apple is expected increase its smartphone volume along with the industry, it isn’t actually expected to gain much in the way of market share. Naturally, Google (NASDAQ: GOOG) Android is expected to maintain its majority share in the coming years. Considering that Android has finally surpassed Apple in terms of smartphone Internet usage, it’s likely only a matter of time until the same thing happens in tablets.

On the tablet front, Android’s market share is expected to surpass Apple’s market share this year, thanks to the rise of low-cost small-screen devices. If we take what happened between Apple and Android in the smartphones and apply it to tablets, it starts with Android’s market share surpassing Apple’s, and ends with a shift in usage share away from Apple. These shifts could create a situation where Apple developers ultimately migrate over to the Android ecosystem. After all, an ecosystem is only as good as its App Store.

However, if Apple can just hold the line and simply sustain its current market share through 2016, it would mean that Apple will increase its iDevice volume by more than 70% from the end of 2012. In other words, the power of compounding could have profound effects of Apple’s business. It wouldn’t matter how un-revolutionary Apple devices are perceived to be because that sort of growth would almost guarantee that its share price would reach new heights. Perhaps investors have their doubts about this possibility?

Money on the table
Let’s face it: Apple is leaving serious money on the table because it hasn’t specifically released a product for emerging-market opportunities. On a worldwide basis, smartphones only represent 25% of all mobile phones, which suggests that emerging markets remain a tremendous growth opportunity in the years to come. If or when Apple decides to address this business opportunity, it would likely give a vote of confidence to shareholders that the company is tapping new avenues of growth.

Foolish takeaway
Back in the heydays, Microsoft (NASDAQ: MSFT) was the ultimate high-flyer. That was well over 10 years ago, and to this day, shares haven’t even come close to those levels. At that time, Microsoft’s P/E hovered around the 80 level, a valuation that could only be justified during the exuberance of the dot-com era.

When Apple hit its all-time high of $705.07 back in September, its P/E sat around 16.5, a number far from exuberant. However, the exuberance wasn’t based on valuation, it was based on investor expectations, which largely believed that Apple, the most revolutionary company on the planet, could grow indefinitely. Given Apple’s legacy, it’s not surprising for investors to get carried away with this idea, only to be disappointed when reality set in.

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The Motley Fool’s purpose is to help the world invest, better. Click here for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

A version of this article, written by Steve Heller, originally appeared on fool.com.

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