By Brett Arends
OK, I give up. Apple $1,000?
Eighteen months ago I questioned whether Apple /quotes/zigman/68270/delayed/quotes/nls/aapl AAPL -0.30% stock could keep up its amazing momentum: "Over the past five years the stock has gained an average of 56% a year, an extraordinary achievement," I wrote. "For the shares to rise at a similar rate from here would take it to $1.25 trillion by 2014. Even to grow at a more modest 20% a year would take it to $333 billion — more valuable than Exxon Mobil /quotes/zigman/203975/delayed/quotes/nls/xom XOM -0.04% today and twice the value of Procter & Gamble /quotes/zigman/238894/delayed/quotes/nls/pg PG +0.31% or Johnson & Johnson /quotes/zigman/230812/delayed/quotes/nls/jnj JNJ +0.32% . Anything is possible, but that's quite a bet." For Apple investors, I felt, the easiest gains were surely over.
Since then, of course, Apple has made me look like a total idiot. The shares have more than doubled. This week, helped by the news that the iPhone is coming to Verizon /quotes/zigman/262341/delayed/quotes/nls/vz VZ +0.17% , they touched a new all-time high of $344. The company is now valued at $315 billion, more than P&G, J&J or any company other than Exxon Mobil. Far from slowing down, the shares have actually speeded up. I calculate the growth rate works out to an annualized rate of 67%.
As for the underlying business: Sales are booming. Net income soared 70% last year. Competitors have been in disarray. You have to wonder what companies like Nokia /quotes/zigman/162154/delayed/quotes/nls/nok NOK +0.39% and Microsoft /quotes/zigman/20493/delayed/quotes/nls/msft MSFT +0.10% are doing. For Apple, each quarter has been a blowout. We will see a new iPad shortly. Earnings next week, if the past is any prologue, will beat expectations.
Even fund managers Jeremy Grantham and Ben Inker, those skeptical souls at GMO, are fans: Apple is now the eighth-largest holding in their "Quality Equity" portfolio. As GMO thinks the stocks in this portfolio are by far the best bets in the market, that's quite an endorsement. (Never mind that Microsoft is their second-biggest holding.)
Time for me to eat a double helping of humble pie. What flavor? Apple, naturally!
I'll have it with some crow. And a side order of oeuf au visage.
So what about that five-year prediction? Can Apple keep going? Will it reach $1.25 trillion in value by 2014? Or anything close?
Only time will tell. But if Apple stock were somehow able to continue booming at the same astonishing rate of the past 18 months, it would hit $500 by October and $1,000 by February 2013.
Ridiculous? Absurd? Impossible? You make the call. You often see musings like this right at the peak of a stock's fortune. Wouldn't that be ironic? But the options market is already taking bets that Apple will top $500 in the next couple of years. The $500 call options, good till January 2013, cost $20 per share.
In "Through the Looking-Glass," Lewis Carroll's White Queen was able to imagine six impossible things before breakfast. Let's content ourselves with one: Apple $1,000. What would it look like? What would have to happen for the company to get there?
There are about 920 million Apple shares outstanding. So at $342 per share, the company has a market value of $315 billion. When you net off cash and liabilities, the enterprise value is about $290 billion.
At $1,000 a share, the value would be around $900 billion.
Right now Apple trades at around 17 times forecast earnings. If that rating stays about the same, then a market value of $900 billion would have to be supported by net income of about $53 billion.
Is that achievable?