Three Reasons Apple Could Still Hit $1,000 by 2014
Hank is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Apple Inc. (NASDAQ: AAPL) can still hit the $1,000 share price mark and $1 trillion market capitalization by 2014 like analysts such as Piper Jeffray's Gene Munster predicted earlier this year. There are several reasons that the technology giant's share price has only stalled before it is poised to continue its rise much like Munster predicted.
Apple Has a Super Low PE Ratio
With Apple's share price trading at the $615 range, the company's Price Earnings Ratio (PE Ratio) is only 9 times this year's estimated earnings for the company's year that ends in September. This is well below the Nasdaq 100 PE Ratio or 11.2 and the S&P 500 index's PE of 15.46. Using the Nasdaq 100's price to earnings ratio alone would translate into a share price for Apple that is closer to $765. And, that price assumes that Apple does not deserve a premium to the average technology company. Is Apple a below average company with low growth potential? Of course it's not, and it does not deserve the low valuation for its current and future earnings.
Huge Cash Hoard May Come Home
Apple continues to grow its cash hoard which is primarily held overseas from profits that the company has earned abroad. Instead of repatriating the over $110 billion the company holds overseas and pay taxes on the income in America, Apple continues to let the company sit idle. Eventually, stockholders could see legislation in Congress that allows multinational corporations like Apple who hold vast sums overseas to receive a tax holiday on returning the money to their American bank accounts which would let the companies buy back shares, increase dividends, and reinvest shares in the company.
Currently, Apple's $110 billion cash equals about $117 per share. The company's cash position is expected to grow to an estimated $205 billion or $213 per share by September 2014. These cash flow figures alone make Apple an attractive stock for the future. If the United States government does change its policy and tax laws, Apple's stock along with many other companies could see quite a rise as well.
The Product Pipeline is Huge
It might be more beneficial to thinking of Apple like a pharmaceutical company instead of technology brand. Like a drug manufacturer, the future of Apple is in its pipeline of future products. And, Apple has an incredible depth of product upgrades and new goods coming out in the near and long-term. Apple could see its share price spike considerably with the final introduction of the iTV. The company will also see considerable revenue increases from the iPhone 5, new iOS upgrades, new computers, and additional products that continue to increasingly creep into our lives.
Apple, Inc. can still reach the seemingly nosebleed share price of $1,000 and $1 trillion market capitalization. Apple has the potential to break the curse that has tormented other companies such as ExxonMobil (XOM), Microsoft (MSFT), General Electric (GE), and others who have either stalled or plummeted after reaching the $500 billion market capitalization mark. The company's future pipeline of products, lower than average PE ratio, and stockpile of cash have Apple poised to continue its charge towards a share price of $1,000.
hankcoleman owns share in and is long AAPL. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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.If you have questions about this post or the Fool’s blog network, click here for information.
