Apple (NASDAQ:AAPL) has been one of the best-performing stocks during the past several years, soaring to become the company with the highest market capitalization in the entire stock market. Despite the blockbuster gains the stock has achieved, however, many believe Apple can still climb further, with some citing a $150 per-share price target as the next stop in Apple's inexorable rise.
We asked three Motley Fool contributors for their thoughts about whether Apple would be able to reach the $150 mark. Let's take a closer look at what they think is in store for Apple's future.
Andrés Cardenal (Yes, and then some more!): I think Apple can easily rise to $150 per share, and the stock can also go considerably above that. To begin with, at a price of $150, Apple would be trading at 17.5 times earnings forecasts for the fiscal year ending in September 2015. That would be in line with the average valuation for companies in the S&P 500 Index, above 18.
The iPhone is clearly booming around the world. Global unit sales increased 46% during the last quarter, and performance was particularly impressive in BRIC countries, where iPhone sales jumped 97% year over year. Apple enjoys tremendous profitability thanks to its unique pricing power and brand differentiation. Furthermore, the company has a rock-solid balance sheet with nearly $178 billion in cash and liquid investments.
Considering Apple's financial performance, potential for growth in emerging markets, and fundamental quality, the company could easily trade at a premium versus the overall market. However, current sales and earnings depend too much on the iPhone; even if sales are booming, that's a major risk factor to consider.
New products such as Apple Pay and Apple Watch are absolutely key. That's not because of their financial impact, which will most likely be moderate in the beginning; it's because Apple stock offers substantial room for gains if management can prove to investors that it can continue innovating and successfully expand into new product categories.
Dan Caplinger (No): I own Apple shares, so I'd be pleased as punch if the stock managed to go to $150 and beyond. Nevertheless, I'm not betting on that happening, as Apple's shares have come quite far quite quickly. Optimism over its coming product launches leave Apple vulnerable to disappointment if the company doesn't enjoy the success that most people expect.
Apple's products enjoy massive popularity; but for those who don't absolutely have to have the newest device as soon as it comes out, any slowing in the upgrade cycle could cause sales to slow. That wouldn't necessarily be fatal to Apple's share price, as its current valuation is quite reasonable; but it could nevertheless bring its impressive gains during the past couple of years to at least a temporary halt.
In addition, one future possibility is that Apple might seek to appease activist shareholders like Carl Icahn by paying a massive special dividend. If that happened, investors would clearly profit; but the continuing share price after the dividend payment would likely go down by nearly the same amount as Apple paid out. That might be winning on a technicality, but it would also answer some investors' concerns about Apple simply becoming too large to advance any further.
Apple has plenty of growth potential in its future. After such an impressive run, though, it might take a while longer before Apple can crack the $150 barrier.
Bob Ciura (Yes): Apple is heading to $150. At first glance, it might seem like a daunting task for Apple stock to get there. After all, the stock is coming off a huge rally. Shares of the tech giant are up 66% in the past year. It might also seem difficult for Apple to break through $150 per share, since Apple is now the biggest company in the world, with a market capitalization in excess of $730 billion.
As crazy as it sounds, Apple is still fairly cheap. The stock trades for 17 times trailing earnings per share, which is still cheaper than the market as a whole. The S&P 500 Index is valued closer to 20 times trailing EPS. And Apple's valuation still has room to expand, because the company is growing at very high rates. A discounted multiple doesn't seem appropriate for a company that grew EPS by 13% in fiscal 2014 and 48% in the fiscal 2015 first quarter.
Analysts expect Apple to earn $8.59 per share in FY15, which would represent another strong year, with 33% growth. At today's price, Apple trades for 15 times its 2015 earnings estimates. If Apple were to reach $150 per share, the stock would trade for 17.5 times 2015 earnings. This is entirely possible, and would actually not require significant multiple expansion. As a result, I fully expect to see Apple trading at $150 per share at some point this year.
Andrés Cardenal, Bob Ciura, and Dan Caplinger all own shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.