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Will Apple be Worth $1 Trillion?

Arthur is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Even several months ago when I would read anything that suggested that Apple’s (NASDAQ: AAPL) market cap can touch $1 trillion, the first thing I would do is immediately check if I was reading a piece on The Onion. After discovering that I was actually on a credible source, I would roll my eyes in disgust. $1 trillion...that’s greater than the GDP of Australia. But with Apple, briefly trading at $600 on Thursday, giving it a market cap of $560 billion, the trillion dollar mark doesn’t seem to be that farfetched after all.

The New iPad, is already a huge success, attracting people to wait in lines to purchase the gadget. According to Gene Munster, an analyst with Piper Jaffray, lines at Apple stores were greater than expected as over 60 million Apple tablets are forecasted to be sold through 2012. In anticipation of heavy iPad sales, Best Buy (NYSE: BBY) and other retailers were selling the tablet immediately after its release. After facing shortages when the iPad 2 sold out, retailers are better equipped this time around to cater to the skyrocketing demand. This did not stop waves of lines forming at the Apple store.   

The hype and long lines surrounding successive Apple product offerings decreases the companies need for a substantial advertising budget. Nike (NYSE: NKE) is well known for pioneering the logo as a primary marketing technique; those who purchased Nike clothing would inadvertently advertise their products everywhere they went as others would be exposed to the swoosh associated with the brand. With Apple products, the product essentially advertises itself, creating hype and consumer demand as people sometimes line up for day to be among the first to purchase the newest tablet or phone.  

Based on its trading multiples, Apple can be viewed as cheap or, at worst, accurately priced, but not expensive, relative to its competitors in the market. Once Apple’s cash, earnings and historic sales growth are considered, Apple is actually cheap compared Microsoft (NASDAQ: MSFT). Looking ahead, Apple is trading at forward earnings multiple of 12, on par with the rest of the market. However, the consumer goods giant clearly has more growth potential than mature oil or utilities corporations.

Apple has two primary sources to continue its growth pattern: emerging economies and the global business market. With more businesses moving away from the BlackBerry towards the iPhone and Macs and iPads being adopted in the business world, Apple can tap into a market where it does not yet have a dominant presence. A recent survey by ChangeWave found that 84% of employers who intend on acquiring tablets for their employees will be looking to the iPad.

In Q4 Apple sold more iPads than any single manufacturer sold desktops. HP (NYSE: HPQ) was the closest competitor selling 15.1 million units, 0.4 million shy of Apple’s sales volume. Desktops and laptops are still the clear favorite in China, where Apple has only an 11% penetration volume rate for its iPads, according to Andy Kessler reporting for the Wall Street Journal. Only 16.6% of Apple’s sales come from the Asia-Pacific region, a figure that is likely to show tremendous growth in the future.  

Oftentimes whenever a company experiences rapid momentum, analysts become bearish on the stock citing a valuation that is not supported by the underlying corporate fundamentals. With Apple, the only serious concern is the “Law of Large Numbers” – Apple can’t maintain its 100+% unit sales growth rate forever; eventually everyone who wants an iPhone or a iPad will have one. The massive self-perpetuating waiting lines and opening growth opportunities in new markets indicates that this will not be a limiting factor for some time.

Over the last 10 years Apple’s shareholders have realized a 4,600% return; within the last year shares have almost doubled, surging almost 80% and even looking at only 2012, Apple shares have been a hot investment, appreciating 45%. Another 85% gain within the next year or two, which would give Apple a trillion dollar market cap, is not completely unrealistic.


Motley Fool newsletter services recommend Apple, Microsoft and Nike. The Motley Fool owns shares of Apple, Best Buy and Microsoft. apinkasovitch has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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