Why Apple’s share price should rise another 50%

By

Apple share price is on a roll
Apple shares went up 100% over the past years, and there are good reasons why it won‘t slow down.
Photo: Ed Hardy/Cult of Mac

If you bought Apple shares on Jan. 9, 2019 then you’ve doubled your money since then. And while Apple certainly had a good year, it’s not done yet.

Analysts are predicting big increases in the share price because of the company’s changing mix of products — it’s not just an iPhone maker any more.

Market wars: The rise of Apple

Apple famously surpassed the $1 trillion mark in market capitalization in the fall of 2018. That made it the first publicly-traded company worth that much. But this was soon followed by pessimistic notes from analysts about weak iPhone XS and XR sales. Lots of them.

The result was a dramatic drop in Apple’s share price, from $232 in October to $142 in January — a decline of 38%. That’s why its shares were such a bargain a year ago today.

The reality was different from the predictions. Apple’s total revenue really was down during the first quarter of 2019. But it pulled in record revenue during the April-to-June quarter. And again during the next quarter. We don’t have figures for the final quarter of 2019, but the company seems to be on a roll.

And market soothsayers apparently understand this. Unlike last year, and the year before, there haven’t been any dire comments from analysts about huge drops in demand for the latest iPhone models. Which is good, as these always turned out to be wrong.

Is Apple underpriced?

But big investors don’t put money into a company because it had a couple of good quarters. They think long term. “When investors buy companies, they buy in anticipation of one or two years out,” said Gene Munster, Managing Partner with market-analysis firm Loup Ventures, in an interview with Cult of Mac. “And if you think about Apple’s business for the next three years, it has probably the biggest opportunity it’s had in a decade.”

Munster credits much of this growth to the iPhone with 5G cellular-wireless networking Apple is expected to launch this fall. “You’re going to have a multiple year 5G upgrade cycle, and investors love that.”

The analyst also says part of the rise on Apple’s share price throughout 2019 comes from changes in the way investors view the company. Apple was considered a hardware company, and so its share priced rose and fell with expectations for iPhone sales.

But that’s changing. “The emerging view is that the numbers over the past 10 years suggest their combination of hardware, software and services actually is a dependable business” said Munster.

Software and services companies like Facebook are valued at about 26x their next year’s expected earnings. Apple, as a hardware company, is valued at 20x expected earning. If Apple was valued the same way Facebook is, as Muster recommends, its share price would be $400.

And it’s not just this analyst from Loup Ventures. The analysts at Jefferies today raised their target price for Apple shares to $350 over the rest of the year. That’s a significant jump from the current $308.

Don’t forget share buybacks

There’s also a stealth reason for some of the rise in Apple’s stock price over the last year: share buybacks.

The company spent $84.1 billion to purchase its own shares in the five quarters ending September 2019. That’s a significant percentage of the total. And with fewer shares available, every remaining one increased in value.

Of course, it doesn’t account for the 100% increase in the share cost over the past year, but it’s a sign that Apple’s board of directors is very optimistic about the future.

Via: Erfon Elijah