Apple (NASDAQ:AAPL) stock has held up well this year amid the coronavirus pandemic. Shares are down less than 4% year to date while the S&P 500 is down over 12%.

With the stock trading around $280 per share already, it's within spitting distance of the consensus 1-year target estimate of $303.75. But one analyst, Evercore ISI's Amit Daryanani, has a price target of $325 and sees a potential path for Apple shares to reach $500.

To be clear, Daryanani doesn't think reaching $500 per share is very likely, but he says it's possible if these three things line up: higher product gross margins, better operating leverage, and an increased valuation. 

For all of those to line up, it would take a concerted effort from Apple to focus on those metrics -- and a lot of luck. As an Apple shareholder, I'm sad to say $500 per share doesn't seem like a price Apple stock will reach anytime soon.

Apple CEO Tim Cook standing in front of the Apple logo

Image source: Apple.

Where will product gross margin improvements come from?

Apple's product gross margin has trended downward over the last few years. In fact, Apple has made several moves that sacrifice its product gross margin in order to sell more devices and support its high-margin services business. It slashed the starting price on its flagship iPhone by $50, and it offered a free year of Apple TV+ to new device purchasers, which should be accounted for as contra-revenue for the hardware business.

Several factors could pressure Apple's gross margin going forward, including the relative success of the new iPhone SE compared to Apple's high-end iPhone models. Additionally, the introduction of a 5G iPhone could produce a lower gross profit margin profile in the near term due to the higher costs of 5G components.

The iPhone has by far the biggest impact on overall product gross margin. That said, smaller products such as AirPods may have significantly higher than average gross margins. Strong sales from those products could lift overall gross margin, but sales would have to far exceed expectations.

Apple isn't in the business of operating leverage anymore

Apple's operating expenses have grown just as fast or faster than its revenue in six of the last seven fiscal years. And even in fiscal 2018, it was close. Total operating expenses as a percentage of revenue have grown from 9% in 2012 to 13% in 2019.

The main driver of that growth is increased research and development activity. R&D expenses have increased nearly five-fold since 2012, reaching $16.2 billion last year. Those R&D expenses support existing products but also go toward products Apple hasn't and may never release. Apple has long been rumored to be working on an augmented reality headset or an electric car. Who knows if and when we'll see those, or what kind of revenue they could generate for the company.

Even if Apple releases a new product category this year, it's unlikely to see much in sales compared to its established products. Thus, it'll be difficult to produce significant operating leverage in the near term from its vast amounts of R&D spend.

A valuation Apple hasn't seen in over a decade

The final piece of the puzzle for Apple stock to reach $500 per share is a relatively high price-to-earnings ratio. Daryani says the market will have to price shares at 27 times his earnings estimate for the next 12 months for Apple shares to see $500.

To be clear, that's his earnings estimate for optimal conditions with higher gross margin and improved operating leverage.

AAPL PE Ratio Chart

Image source: YCharts.

The last time Apple was valued at over 27 times earnings was in September of 2008. Even at its recent peak, Apple shares didn't reach 26 times earnings. Daryani notes that multiple is in line with other consumer luxury goods companies, but despite several comparisons of Apple Watch sales to Rolex sales, Apple isn't typically valued alongside those companies. It's more likely to be grouped with other tech companies. 

With the current economic environment, it's hard to see a company such as Apple surpassing the valuation level it saw before the crash in the near future. There's still a lot of uncertainty, and a longer recession could be especially difficult for Apple.

Again, I hope I'm wrong, and Apple shares spike higher on strong gross margin, improved operating leverage, and optimism from the market leading to a higher valuation. It would make me a lot wealthier. But it's not likely to happen anytime soon.