rtmark
LearnBonds.com

Apple Inc. (AAPL) Stock: Next Stop $150 A Share… Or $50 a Share?

Apple Inc's Apple Store NASDAQ:AAPL

Having shed about 25% of its market capitalization since last year, Apple Inc. continues to be mired in a bull vs. bear tug-of-war. Though the company’s valuation multiple sits at a rather cheap looking 11X this year’s earnings, there are few people arguing that its best days sit in front of it.

Apple Inc's Apple Store NASDAQ:AAPL

The company’s three core revenue generators, iPhone, iPad, and Mac all showed flat to down trends in its most recent quarter, both in terms of number of units and cash sales. iPhone alone represented more than 2/3 of revenue. The remainder of the company’s operating model, which includes things like Apple Watch, Apple Care, Beats, and other smaller revenue sources, contributed less than 15% of the top line.

With such a limited number of products contributing to such a preponderance of its business, many see Apple vulnerable either to just a plain slow down in iPhone uptake, the rapidity of consumer upgrades, or just to a global economic slowdown. On the flip side, the critical mass the company has achieved through the so-called Apple ecosystem continues to grow, and isn’t something likely to break down over night.

You might wonder why Apple trades at nearly half the valuation multiple of a company like Procter & Gamble (PG), which is showing similar slow growth trends. Answer is that PG has a huge product portfolio and a more reliable recurring revenue stream.

The $150 per share Apple argument 

For Apple Inc. ‘s stock to reach $150 a share, it will require adding another $283 billion, yes billion, of market capitalization to its current value. To put that into real terms,  there are only 5 other companies on the planet that are currently valued more than $283 billion: Microsoft Corporation , Facebook Inc , Exxon, J&J, and General Electric.

Though Apple certainly seems to be experiencing a lull right now, it would not be the first time that the company was somewhat counted out. After topping out at a split adjusted $100 a share in 2012, the stock lost better than 40% of its value before roaring back once again after bottoming in 2013, more than doubling by the Spring of 2015.

Of course relying on an investment thesis of “well it happened before and it will happen again,” is not exactly the strongest foundation to rest a case. Still, with the notion that Apple has a good track record of bringing disruptive products to market before or better than anyone else, I’d argue that the pipeline may be more flush than is currently expected. On the other hand, several Apple Watches won’t be enough to build to the mass (and profit) that iPhone has.

Since the market seems to be pricing in rather low growth projections, a surprise burst of revenue from a next-gen iPhone, better than expected global uptake of its entire product line, or a strategic alliance or acquisition, could bring about a surge of renewed market support. Even moderate earnings growth could lead to multiple expansion. Keep in mind that at current valuation, 50% expansion would equal less than a 17 multiple. Microsoft sells in excess of that right now. Facebook, about double that. Amazon – too speculative to even price in terms of bottom line output.

The $50 Apple stock argument

For the stock to drop 50% from current trades, there would need to be a near-term catalyst for widespread abandonment of the Apple ecosystem. Absent an abrupt development, one would need to envision other more slowly impactful scenarios. One would be Apple simply losing its innovative touch and being flanked by competitors’ disruptive advances over a stretch of time. Another might be a generally secular slowdown in the upgrade or demand cycle or slow margin degradation from lack of pricing power.

There might also be something else out there that we haven’t considered as of yet.

For those that think that’s an impossible scenario, I’d think again. If we turn back the clock 15 years, Apple was barely a blip on anyone’s tech-investment short list. Blasts from the past include Nokia, Motorola, Dell, and National Semiconductor. Of course the breadth of products, fan base, and captive ecosystem that Apple has built makes those companies look like small potatoes. Still, those companies seemed invincible also when they were at the top of their game.

Getting back to some quantitative thoughts, it would take substantial market cap erosion for Apple to get to $50. However, the exact same thing occurred in the 2012-13 downdraft I alluded to above. As I am long AAPL at time of writing, I don’t see that as a likely outcome, however.

But I don’t see $150 as likely over the next couple of years either. What I see is a company that has quickly matured, has tons of cash, and flexibility to build shareholder value during a period of revenue lull.

At the end of the day Apple probably doesn’t represent the best technology stock you could right here, but it doesn’t represent the worst one either.

Trusted & Regulated Stock & CFD Brokers

Rating

What we like

  • 0% Fees on Stocks
  • 5000+ Stocks, ETFs and other Markets
  • Accepts Paypal Deposits

Min Deposit

$200

Charge per Trade

Zero Commission

Rating

64 traders signed up today

Visit Now

75% of investors lose money when trading CFDs.

Available Assets

  • Total Number of Stocks & Shares5000+
  • US Stocks
  • German Stocks
  • UK Stocks
  • European
  • ETF Stocks
  • IPO
  • Funds
  • Bonds
  • Options
  • Futures
  • CFDs
  • Crypto

Charge per Trade

  • FTSE 100 Zero Commission
  • NASDAQ Zero Commission
  • DAX Zero Commission
  • Facebook Zero Commission
  • Alphabet Zero Commission
  • Tesla Zero Commission
  • Apple Zero Commission
  • Microsoft Zero Commission

Deposit Method

  • Wire Transfer
  • Credit Cards
  • Bank Account
  • Paypall
  • Skrill
  • Neteller

Rating

What we like

  • Sign up today and get $5 free
  • Fractals Available
  • Paypal Available

Min Deposit

$0

Charge per Trade

$1 to $9 PCM

Rating

Visit Now

Investing in financial markets carries risk, you have the potential to lose your total investment.

Available Assets

  • Total Number of Shares999
  • US Stocks
  • German Stocks
  • UK Stocks
  • European Stocks
  • EFTs
  • IPOs
  • Funds
  • Bonds
  • Options
  • Futures
  • CFDs
  • Crypto

Charge per Trade

  • FTSE 100 $1 - $9 per month
  • NASDAQ $1 - $9 per month
  • DAX $1 - $9 per month
  • Facebook $1 - $9 per month
  • Alphabet $1 - $9 per month
  • Telsa $1 - $9 per month
  • Apple $1 - $9 per month
  • Microsoft $1 - $9 per month

Deposit Method

  • Wire Transfer
  • Credit Cards
  • Bank Account
Users should remember that all trading carries risks and users should only invest in regulated firms. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Avatar

Adam Aloisi has over two decades of experience investing in equities, bonds, and real estate. He has worked as an analyst/journalist with SageOnline Inc., Multex.com, and Reuters and has been a contributor to SeekingAlpha for better than two years. He resides in Pennsylvania with his wife and two children. In his free time you may find him discussing politics, playing golf, browsing antique shops, or traveling.