Jon Markman of MSN Money lays out the case for Apple’s stock price hitting $335 by 2012.
To project a $335-a-share price in three years, I am just looking for 15% earnings growth and a return to the premium price-earnings multiple that is accorded to industry leaders. General Mills is growing at 8% and gets a 16 P/E. In this tough environment, Apple is being given a 22 P/E, but in a more buoyant climate it should have an opportunity to shift higher toward a P/E that’s double its growth rate, or 29. That may seem high now, but technology leaders are frequently given 30 to 50 P/Es as traders determine that they are willing to pay up for growth.
My estimate for Apple earnings next year, based on current and projected growth trends, is $7.90 a share. Grow that 15% for three years and multiply by a 28 P/E and you get roughly the $335 target. It won’t be easy, but it is within reach.
That might seem like a stretch but let’s take a quick look back. 3 years ago today, and before the arrival of the iPhone, Apple was trading at or around $68 a share. Since then, Apple’s stock price has nearly tripled as it briefly flirted with the low $200 range in December ’07. Currently, Apple is trading at $163.91, which represents more than a 100% increase in stock value since August 2006.
Looking forward to August 2012, a $335 price target certainly seems feasible – that is, of course, if Apple can out with a new product that can generate another significant revenue stream, a’la the iPhone in 2007. Of course, if Apple releases a tablet and that becomes a big hit, there’s your new revenue stream right there. But flying under the radar a little bit are the ramifications of Apple’s current and exclusive iPhone deal with AT&T. Given all of the complaints surrounding AT&T’s subpar service, Apple will undoubtedly look to branch out to other carriers as soon as it becomes practical to do so. And with all signs pointing towards the iPhone hitting Verizon sometime in 2010, on their upcoming 4G network of course, Apple may soon see its iPhone market share, and subsequently its iPhone revenue, increase dramatically.
Analysts may look at the iPhone and think, “Okay, what’s next?”, but the truth is that we haven’t even begun to see how profitable the iPhone will be for Apple. Once its contract with AT&T expires, things will undoubtedly kick into high gear.