One thing that investors new to the stock market often don't look at is a company's market capitalization, which is the "total market value of a company's outstanding shares of stock." This is a much more meaningful metric than, say, stock price, because it tells you how the market values the business.
If, as an investor, you think that a company's business could (or should) be worth more than its current market capitalization, then the shares could represent a buying opportunity. Conversely, if a company's market capitalization seems too high relative to its business opportunities, then it could mean that it's time to sell the stock.
Apple (NASDAQ:AAPL), arguably the most innovative technology company in the world, is on its way to commanding a market capitalization of $1 trillion, which would make it the first publicly traded company to ever achieve that market value. Assuming a diluted share count of around 5.07 billion (note that Apple has been aggressively buying back stock so this number comes down a lot each quarter), Apple will hit a $1 trillion market capitalization when the stock hits approximately $197.23 per share.
That's only a 3.6% rise from where the stock last closed as of this writing.
What would Apple hitting this milestone mean for you, the current or prospective Apple stockholder? Let's find out.
Not as much as you'd think
If Apple does manage to hit a $1 trillion market capitalization soon -- something that I think will happen shortly after this article goes to publication, if it hasn't already -- then it'd be good for a lot of headlines in the financial press. It'd also be a nice psychological milestone for both many individual investors (I doubt that institutional investors -- that is, the folks who run mutual funds and hedge funds -- would care much).
However, hitting that milestone wouldn't fundamentally change anything about Apple's business. Apple's investments in product and technology development won't change as a result, demand for its products isn't likely to be affected by the company hitting that historic milestone, and, most importantly, the investment thesis won't change much.
Moreover, the positive press coverage that Apple and its stock might get could be short-lived, because if the stock fails to hold above that $1 trillion market cap level, then the chorus of headlines cheering Apple on for achieving that business valuation could quickly become chants of doom and gloom.
What really matters
As either an investor or potential investor in Apple, what you should really care about aren't arbitrary market capitalization milestones. Instead, you should keep your eyes laser focused on Apple's revenue and profit growth. Right now, current analyst consensus calls for the company to enjoy 13.8% revenue growth during its current fiscal year and just 4.3% revenue growth in the following year.
Earnings per share, according to analyst estimates, should be $11.49 this year, up 24.8% year over year and $13.27 in the following year, implying another 15.5% growth. This figure is surely boosted by the expectation that Apple will gobble up a lot more of its shares after recently announcing a $100 billion buyback program, reducing share count and increasing earnings per share.
So as long as the company can deliver on these growth expectations (or, ideally, exceed them), Apple stock should continue to move on up and it could leave the $1 trillion market cap milestone solidly in the rearview mirror in the years ahead. But if Apple's business performance falters, $1 trillion could represent a multiyear peak for the company's value.
Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.