AAPL over $1000 - How?

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    Posted: 13 October 2010 02:54 PM #16

    It’s the inevitable endgame, we just don’t know when.  I’ll still hold AAPL then, I think, just as long as the company still stands for what it does now and runs itself in a similar manner.

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    Posted: 13 October 2010 03:03 PM #17

    Don’t forget size of BRIC economy would overtake US some time in the future.

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    Posted: 13 October 2010 03:17 PM #18

    AAPL over $1000? Hyper inflation through a significant devaluation of the dollar.

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    Posted: 13 October 2010 03:18 PM #19

    Mace - 13 October 2010 06:03 PM

    Don’t forget size of BRIC economy would overtake US some time in the future.

    2020 as I recall.

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    Black Swan Counter: 9 (Banks need money, Jobs needs a break, Geithner has no plan, Cuomo’s grandstanding, .Gov needs a hobby, GS works for money, flash crash, is that bubbling crude?).

    For those who look, a flash allows one to see farther.

         
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    Posted: 13 October 2010 03:40 PM #20

    Eric Landstrom - 13 October 2010 06:17 PM

    AAPL over $1000? Hyper inflation through a significant devaluation of the dollar.

    Hey, that’s what I said in post#4.  You’re Johnny come late.  I noted that we do have similar views of macro-economics.

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    Posted: 13 October 2010 05:54 PM #21

    Mace - 13 October 2010 06:03 PM

    Don’t forget size of BRIC economy would overtake US some time in the future.

    What does this have to do with the price of Apple?

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    Posted: 13 October 2010 06:10 PM #22

    asymco - 13 October 2010 08:54 PM
    Mace - 13 October 2010 06:03 PM

    Don’t forget size of BRIC economy would overtake US some time in the future.

    What does this have to do with the price of Apple?

    Bigger economy means higher per capita which mean more and richer middle class who can afford Apple products.  This mean bigger revenue and earnings for Apple and higher share price.

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    Posted: 13 October 2010 06:30 PM #23

    mbeauch - 13 October 2010 03:13 PM

    ...There was someone who used to post here long ago that used to claim that Apple was recession proof, that did not work out to well.

    Stay vigilant. :innocent:

    Apple has been (largely) recession-proof! (Just consider iPhone’s growth)
    AAPL hasn’t.

    In the next bull $1000 is possible.

    That said, to stay vigilant is great advice!

         
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    Posted: 13 October 2010 06:33 PM #24

    In short: Yes, why not?

    Apple will continue to innovate and disrupt markets and create technology we can’t even imagine today. Several things can stop it:
    1) Several successive flops or non-successes (I honestly think it’ll take more than one)
    2) Another company like Apple coming along. (Google is clearly not that)
    3) Antitrust.
    4) Dividend or stock split (not bad things)
    5) Steve Jobs leaving (even though he’s built a start team I don’t think there’s another exec like him)

    That being said, $1000 is certainly possible. In the meantime, if you think it can only go to $500 (but are fairly certain there’s room above $300) then use options or LEAPS (or margin, though I hate margin).

         
  • Posted: 14 October 2010 10:43 AM #25

    aardman - 13 October 2010 04:20 PM

    Most people, especially stock analysts, base their projections on the predicted trajectory of Apple’s existing and imminent products.

    And yet Apple’s growth, if you look at the last 10 years, was driven by the creation of new markets and new products.  Not the expansion of existing markets and products.

    So predicting Apple’s stock price on the basis of predicted sales and profitability of Macs, iPods, iPhones and iPads (the existing product lines) is a glaringly under-informed exercise.

    We don’t know if Apple will be able to continue on its pace of introducing market pioneering products every three or four years.  We can only have faith or lack thereof about whether Apple has perfected an innovation factory that guarantees the continued introduction of revolutionary products. 

    If you believe in Apple’s innovation factory like I do, then you stay invested with the expectation that we don’t know what the future products will be but we are confident that they will continue to be mind-bogglingly successful and that AAPL will continue close to the same trajectory that had it rise from 45 in 2005 to 300 today.

    But if you don’t believe in Apple’s continued success in innovation then you bail out now.

    Just to clarify, are you saying that profitability does not affect stock value, and that market share has no effect on profitability, and that penetration of the under-tapped Asian market - such as the burgeoning middle classes in India China -  would have not have a multiplicative effect on market share?

    I whole-heartedly endorse Apple’s capacity for continued innovation as a key driver of its stock value and market cap. At the same time, one cannot discount the effect of continued improvements in its existing product lines, for example the iPhone 3GS over its predecessor, on Wall Street’s evaluation of the company. The company’s MacBook Pro line once again taking the ‘computer of the year’ award occurs during a period of expansion in market share in markets where the brand is already well-known, and continues to garner interest and demand in under-developed markets.

    The point being simply that, at least to this investor, Apple’s success has not been a one-trick ride, namely innovation alone, but shrewd marketing and product maturation as well.

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  • Posted: 14 October 2010 07:30 PM #26

    wab95 - 14 October 2010 01:43 PM
    aardman - 13 October 2010 04:20 PM

    If you believe in Apple’s innovation factory like I do, then you stay invested with the expectation that we don’t know what the future products will be but we are confident that they will continue to be mind-bogglingly successful and that AAPL will continue close to the same trajectory that had it rise from 45 in 2005 to 300 today.

    But if you don’t believe in Apple’s continued success in innovation then you bail out now.

    Just to clarify, are you saying that profitability does not affect stock value, and that market share has no effect on profitability, and that penetration of the under-tapped Asian market - such as the burgeoning middle classes in India China -  would have not have a multiplicative effect on market share?

    No. I never said innovation is the only thing that matters.  All the things you said above matter, but compared to the path of future innovation, those things are relatively easy to project and so those are already built into the stock price and projections of the stock price. 

    What I am saying is the reason AAPL consistently outperforms people’s stock price expectations is that nobody can predict what successful products lie in Apple’s future.  And if you can’t predict that, then you can’t really predict its stock price because a big (BIG! The BIGGEST, I say!) component of its growth is not growth in sales and profits of existing products but growth from totally new, market-creating products.

    “Apple creates things that we did not know we could not live without”, don’t know who said it first but that is what sets Apple apart from every other widget company.

         
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    Posted: 15 October 2010 01:56 AM #27

    aardman - 14 October 2010 10:30 PM

    ... the reason AAPL consistently outperforms people’s stock price expectations is that nobody can predict what successful products lie in Apple’s future.  And if you can’t predict that, then you can’t really predict its stock price because a big (BIG! The BIGGEST, I say!) component of its growth is not growth in sales and profits of existing products but growth from totally new, market-creating products.

    You nailed it.  Many professional analysts fail to recognize this.  They only know how to use sophisticated financial analysis on known products.

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  • Posted: 15 October 2010 10:06 AM #28

    @Mace - you are right, when analysing and forecasting AAPL’s financials over the next 3-5 years, one can only look at their current products.  Who knows what will be the next multi-billion dollar product.  However, it looks pretty tough from where we are sitting today to assume that AAPL can get to $1000 per share in the next say 3 years, with their current range of products.

    As an aside, do we have a thread open somewhere which contains some predictions of future products which AAPL might turn their attention to?  I personally don’t have the vision or expertise to really think of many new products apart from developing their current range, but I am sure there are people here that could give it a damn good go.

         
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    Posted: 15 October 2010 10:40 AM #29

    JonathanU - 15 October 2010 01:06 PM

    @Mace - you are right, when analysing and forecasting AAPL’s financials over the next 3-5 years, one can only look at their current products.  Who knows what will be the next multi-billion dollar product.  However, it looks pretty tough from where we are sitting today to assume that AAPL can get to $1000 per share in the next say 3 years, with their current range of products.

    As an aside, do we have a thread open somewhere which contains some predictions of future products which AAPL might turn their attention to?  I personally don’t have the vision or expertise to really think of many new products apart from developing their current range, but I am sure there are people here that could give it a damn good go.

    The assumption made by all the professional analysts is growth beyond the current fiscal year tails off rapidly.  If we look at the current consensus projections EPS growth TTM was 75.66% but projected EPS Growth for next year is 23.83% and 19.2% over the next 5 years.  If we assume Apple will command a P/E equal to growth rate.  1000/24 = $41.6 in earnings.  We are at about 15 TTM on Monday .  I’m modeling $24 next fiscal year just ramping the iPhone & iPad.  So in 2012 we can expect some moderation in the rate of growth in iPhone just as the iPad reaches it’s peak rates of growth.  Can we grow Apple TV into a multi-billion dollar business by then?  Two new areas worth watching.  Mobile Ads which Goggle just highlighted as a billion dollar business, and Apple TV.  The majority of people spend $50-100 for the privilege of watching a bunch of ads and some programming.  The areas I’m watching.  Electronic book, magazines, newspapers & textbooks.  Use of iDevices in the medical field.  Farther out, Cloud Computing, Smart Grid & Auto.

         
  • Posted: 15 October 2010 11:33 AM #30

    Excellent post Pats.

    There is a big discrepancy between AAPL’s growth rates and AAPL’s P/E ratio, and I don’t really see this rectifying itself shortly (if ever).  The only reason is due to the fallacy of the law of large numbers.  AAPL will find it very hard to increase their P/E ratio, unless we enter into a fairly sustained bull market.  I would argue this isn’t likely in the next 3 years, given the massive issues still facing the developed world’s economies.  Therefore, AAPL will have to do it the old fashioned way, of powering the denominator, earnings.  Of course there may be multiple compression, but I don’t see it compressing too much, especially as AAPL’s ex-cash P/E multiple is roughly in line with the S&P 500 average: http://www.asymco.com/2010/06/19/apple-considered-less-valuable-than-the-average-sp-500-company/.

    So if we take 17 P/E as the base case, and apply it to Apple’s earnings, we need earnings of about $60 per share to take us to $1000 (I have assumed in this case that Apple uses all their cash to buy back shares, thereby pushing up EPS.  You can calculate it slightly differently and assume AAPL has x amount of cash per share which you can then add back to lower earnings to get to $1000 per share, however, the result is the exact same either way you do it).

    This looks pretty difficult by any stretch of the imagination…

    P.S. I think you are right about Mobile Ads as well as the sale of electronic books/magazines etc.  These are very large markets, and if AAPL can position themselves to take a small slice from every book or magazine subscription sold and every ad viewed, then we’re talking a pretty significant amount of cash to be made.