How Apple shares get to $500

Philip Elmer-DeWitt reports for Fortune that for Apple (AAPL) shares to “get to $500, according to Trefis, two things would have to happen.”

• The iPhone’s market share would have to grow significantly. To take the target to $400, Trefis had already assumed Apple’s share of the worldwide mobile market would grow from 4% to 14%. Going to 17% would add $55.
• The iPad would have to get even hotter than it is. Using iSuppli’s estimates, Trefis assumed that Apple would ship 12.8, 43.7 and 63.3 million iPads in 2010, 2011 and 2012, respectively. If Apple can reach 90 million units by 2012, the stock price should grow another $45.

P.E.D. does the math, “$400 [Trefis’ current price target] + $55 + $45 = $500.”

Full article here.

[Thanks to MacDailyNews Reader “iWill” for the heads up.]

20 Comments

  1. Those of us who lived through the Internet bubble (and lost a lot on that ride) may have been too reticent about plunging more heavily into Apple. But it’s tough to argue with Apple’s continuing success and $51 Billion cash pile.

  2. And you wonder why Microsoft’s Steve Ballmer is dumping 1/6 or $1.3 billion of his Microsoft stock.

    And Google is telling these box builders not to use Android for tablets! No iPad killers anywhere.

    And the value and purpose of the BILLION DOLLAR SERVER FARM is not in these numbers yet. You all know it is “on schedule” this quarter. Should have asked, “What are you going to do with the investment of a BILLION DOLLARS?”

  3. We’d all be wearing hard hats.

    The economy isn’t very strong and most of Apple’s market are people who have been injury or hurt less by the recession. Growing in existing markets pushes Apple into more modest incomes and most of these people feel very pinched right now.
    A recent survey found over half the heads of household in the US are worried about the next month’s mortgage payment/ rent. Not to be Debbie Downer, but if you aren’t sure about the money keeping a roof over your head you aren’t likely to be buying a more expensive phone/plan.

  4. Trefis makes the whole valuation question way to complicated.

    Trefis erroneously compares i)hone contributio to revenue by comparing it to the valuation of RIMM and MOT, both of which are low margin sellers. They do this with Apple’s entire product line.

    The issue is much more straight forward. It is how much does Apple throw off as EPS (which is a function of GM and efficient operations), and how does the market react to those earnings and the future earnings of the company.

    Trefis addresses those issues obliquely.

    Using Apple’s AVERAGE growth of the past 3 years (which they have consistently exceeded without iPad contribution) AAPL exceeds $500 share prior to July earnings. This target for AAPL does not entail an increase in market sentiment for the equity. An upturn in market sentiment could have AAPL trading at $500 as early as May.

  5. Peter you are correct.

    “the total market is growing for the iphone and ipad so apple’s share of the market doesn’t have to go up as much as they are saying, i think.”

    If share were an issue MSFT would be worth more than AAPL. It isn’t: not share price, and not market capitalization. The issue is earnings and whether they are growing, stagnant or declining. Apple’s earnings are growing (60+% per year) as though it were a start up, not a mature company in the S&P 100.

  6. I’d expect to see a stock split before the price gets up to those lofty levels. Otherwise, Apple has effectively shut out the small investor from future participation.

  7. …”Otherwise, Apple has effectively shut out the small investor from future participation.”

    I would like to meet an investor who cannot afford $510 ($500 for a single share, plus $10 for trade commission) to invest. If there is such a person, I would point them to a number of investment brokerages that would allow him to buy partial shares of any stock (including BRK.A, Class A stock of Berkshire-Hathaway, that goes for $123,000 per single share).

    Stock split is pointless, not that commission on trade is no longer tied to the price of the stock traded. There are even trading sites that offer limited number of FREE trades per month (Zecco gives you 10 free trades per month).

    Absolutely no point of splitting a perfectly good stock.

  8. “I would like to meet an investor who cannot afford $510 ($500 for a single share, plus $10 for trade commission) to invest.”

    For about $1200 an investor can control 100 shares of AAPL through January 21 with a Strike of $330.

    With analysts expecting AAPL to hit $350 by then, that investor would make 65% on his investment.

    Owning shares involves too much capital. I started trading options in 2004 and since, have traded nothing else.

  9. None of that has to happen for AAPL to reach $500. The only thing that needs to happen is for investors to BELIEVE that Apple will hit those types of numbers (or higher).

    Conversely, investors might suddenly believe that Apple will not hit such lofty numbers for whatever reasons, or that Steve Jobs is secretly planning to retire next year… Or something like may “antennagate” occurs for some other non-issue or perhaps a real issue this time… Or the general market may tank due to another financial crisis… and AAPL could be below $200 again.

    Stock price is not based on actual performance; it is based on the collective faith of investors, or lack of faith (MSFT). So long-time AAPL investors should be happy but always wary; most of the people buying into AAPL now don’t have your level of “faith” in Apple.

  10. “most of the people buying into AAPL now don’t have your level of “faith” in Apple.”

    It’s stupid to buy something you don’t have faith in. I’d argue that 100% [of the people buying into AAPL now have my level of “faith” in Apple]. If they didn’t they wouldn’t be buyers.

    It’s the people that aren’t buying that don’t have my level of “faith”.

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