Seeking Alpha
Value, growth at reasonable price, dividend investing, equity research
Profile| Send Message|
( followers)  

Apple (NASDAQ:AAPL) continues to churn out impressive results, blowing away all estimates with their Q1, FY2012 earnings announcement. We are not going to focus on the quarter's earnings, but on whether Apple's performance justifies a higher valuation.

The TTM product revenue and stock price is shown below:

The stock is being driven by the steep increase in iPhone and iPad sales (shown above). The stock can continue its steep rise if the EPS growth rate remains in the double digits, although this will be dependent on the iPhone and iPad markets going forward.

A key question is whether the iPhone market is starting to mature, or whether there is continued growth ahead. We've put together a market projection based on a recent interview with Kulbinder Garcha of Credit Suisse and a Gartner market projection. We've combined these forecasts and interpolated data for the middle years (2012-2014).

Year (sales in thousands)

2010

2011

2012

2013

2014

2015

Smart phone Market

293000

462000

630000

800000

950000

1053000

iPhone Sales

47487

93102

138600

160000

178125

184275

iPhone Market Share

16.2%

20.2%

22.0%

20.0%

18.8%

17.5%

iPhone growth

NA

96.1%

48.9%

15.4%

11.3%

3.5%

Based on these reports, iPhone sales growth will continue to be robust through 2014 and will not dip into single-digit growth until 2015.

We calculated an average annual tablet growth rate of about 30% through 2015 based on Kulbinder Garcha's interview. Given these projections, it will be a few more years before the iPhone and iPad markets mature, allowing Apple ample opportunity to expand sales.

Stock Market Perception

Given Apple's past success, iPhone and Tablet projections, it's surprising the market has relegated a low PE to Apple. The diluted earnings per share are plotted against the PE ratio is as follows:

The PE based on 2012 earnings is about 10.8 at the time of this writing.

For Apple's market cap to exceed a half trillion dollars would require a stock price of about $536 and a forward PE of 12.7. Given the market projections which can support Apples double-digit growth rate and low PE, $536 seems a very reachable milestone.

Detailed financial data used in this article can be found here.

Source: Apple Is Still A Bargain, Likely Headed Past $500