An Apple All Year Will Make You 35%

Apple (AAPL) announced earnings last week and boy they were great. The ever growing popularity of iPods seem to know no bounds with 8.7 million of these shipping in the most recent quarter taking the fiscal total to a whopping 39 million units. iPod growth over the same period last year was 35% -- quelling investor worries regarding slowing iPod growth.

At its current rate, Apple holds 75% of the MP3 player market share despite competition from Sandisk, Creative, Sony and the forthcoming Zune. Frankly, I cannot imagine Zune toppling the iPod. It's another Microsoft product and I expect it to have its share of problems.

As if iPod sales alone isn't an amazing story in itself, what really takes the cake is Mac sales. A record number of Macs were shipped this quarter, registering a 30% growth over this period last year, reaching record proportions never achieved before in the company's 30 year history. Over half the Mac sales were to first time Mac buyers, which means that Dell and HP must seriously consider the threat that the new Macs are posing to their business and market share.

Total revenues increased 39% over their previous record revenue number, and Apple's cash horde increased by approximately 25% over last fiscal year. Earnings for the entire fiscal year was $2.27 per share, over 45% higher than last year. Such a stock deserves a much higher multiple than the current P/E ratio of 35. In fact, I think Apple will easily earn $3.20 per share next year, putting the stock at $112 at current multiples. This is the low end of my expected stock price. I believe the stock could support a multiple of 40, putting the stock at $128 and possible even 50, which means the stock would be worth $160, up 100% from these levels.

While the market has reached a multi-year high this month, Apple is still more than 10% away from its all time highs reached earlier this year. Also, keep in mind that Apple is said to be launching two iPod phones this year, along with increasing its available video content on iTunes.

I'm buying this stock now and holding on for yet another run up -- hopefully at least a 35% gain by this time next year.

AAPL 1-yr chart:

Comments

[Tom B:]

"This is the low end of my expected stock price. I believe the stock could support a multiple of 40, putting the stock at $128 and possible even 50, which means the stock would be worth $160, up 100% from these levels."

Agree 100%. Don't forget app software, either, as a driver. DV is hot (Google's YouTube); AAPL does DV better than anyone else (Final Cut Pro; iMovie). Google's Schmidt is on AAPL's board.

2006 Oct 25 10:49 AM

[ender g:]

When you add up a growing Mac hardware base, the coming iTV, the iPhone if it ever happens, new iPods, a new Operating System you get a very good 2008 for AAPL! The release of fully Mac-Intel compatible Adobe software in Q1 of 2008 will accelerate Apple hardware sales to business and professional users who have been hanging back to make their bulk purchases. This I believe will be a very positive influence on both APPL and ADBE stock in 2008.

2006 Oct 25 11:52 AM

[Tom B:]

"The release of fully Mac-Intel compatible Adobe software in Q1 of 2008 will accelerate Apple hardware sales "


I have long held that Apple ought to put Photoshop out of its misery. And, for that matter, Distiller. With Preview, they've already relegated Acrobat Reader to the Graveyard of Obsolete Software, right next to Adobe Premiere.

2006 Oct 25 03:32 PM