by Jeff Reeves | March 16, 2012 7:00 am
Apple (NASDAQ:AAPL) is arguably the most amazing tech company in history. It has redefined how we listen to music or use our phones, and has almost single-handedly moved the world beyond the idea of desktop computers and tactile keyboards.
As an investment, the stock is equally amazing. The latest milestone for Apple is that it briefly traded above $600 a share Thursday morning. And that raises an important question: How long can Apple stock keep up this kind of growth? The answer: Probably for a long time to come — and here’s why:
The new iPad: Preorders of its new iPad are “off the chart” according to Apple reports. That’s quite a feat considering the success of previous launches. Features of the new tablet include a slick “Retina” display, designed so it’s literally impossible for the human eye to discern individual pixels at arm’s length. “The new iPad” boasts an improved 5 megapixel camera and the capability to record HD video. There’s also a voice dictation feature on this new Apple iPad tablet.
It’s perhaps not the evolutionary change some had hoped for, but it certainly will tighten Apple’s stranglehold on this market — especially when coupled with a price cut of the “old” iPad 2 to just $399 for the basic version.
It may be a bargain, even at $600: Up almost 50% year-to-date and up over 500% in the last five years — sounds like an overbought stock, right? Well, maybe not. The important thing is that profits are rising just as fast as the stock. Based on predictions of $49 per share for fiscal 2013 earnings, Apple has a P/E ratio of around 12.2. The historic average for the S&P is 15, and right now the trailing 12-month operating P/E of the S&P 500 stands at 13.9.
In other words, Apple is at worst fairly valued, and may even be a bargain compared to many other stocks, at least by this price-earnings metric. And that’s even if the company only meets forecasts instead of beating them — and as we saw in its first-quarter earnings, Apple sometimes blows away even Wall Street’s ambitious forecasts.
$100 billion in cash: Last quarter, Apple reported $30 billion in cold, hard cash on its books. It has another $67 billion in long-term investments. Total hard assets at the company are about $138 billion. So that’s what this company is valued at without a single new iPad sales receipt! That makes it easier to understand how this company can be worth so much, and sit on the top of the heap as the largest publicly traded U.S. stock by market cap.
Targets keep moving higher: So is it just suckers like me buying Apple? Not quite. Consider that in early March, Barclays Capital just bumped its 12-month price target on Apple stock up 13% — from $630 to $710 per share! This is after a February upgrade to the stock from Oppenheimer, which put an outperform rating on AAPL shares. Clearly, institutional investors aren’t scared at all of owning Apple even after the impressive run of the past few years. And every time Apple sets a new price record, firms like Barclays are eager to revise estimates even higher.
Granted, you have to be very leery of a momentum stock that has run up as dramatically as Apple. But if you do some basic fundamental analysis you will see quite quickly that Apple has deserved all of its gains so far — and is set up for continued success.
That means $600 may just be another milestone that is quickly surpassed in the stock’s steady march upward.
Check out a previous post on what life would be like without Apple for details on just how influential this stock is.
Jeff Reeves is the editor of InvestorPlace.com, and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace?.com, follow him on Twitter via @JeffReevesIP. As of this writing, Jeff held a position in none of the stocks named here.
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