There is no doubt that Apple (NASDAQ:AAPL) is trading with its maximum level of momentum. The technology giant has increased its market cap by $183 billion in 2012, which is larger than Bank of America (NYSE:BAC) and Caterpillar (NYSE:CAT) combined. The stock's movement has been caused by one record breaking event after another, but with a $560 billion valuation some are wondering how high may Apple go in 2012.
Regardless of the similarities between Google (NASDAQ:GOOG) and Apple investors choose to compare the two companies. I have a personal reason for comparing the two stocks. Back in 2009 I made a choice to invest in Google over Apple. But in December of 2011 I decided to make a change and sold my Google stock to purchase Apple, which is now the largest holding in my portfolio, thanks to a 56% gain. But with such large gains I have found myself wondering if I should take profits.
I almost sold my shares of Apple on Monday before I reminded myself that Apple only trades with a P/E ratio of 17 and is growing revenue by 60% and earnings by over 80% year-over-year. The company also just implemented a dividend and continues to improve just about every measurable metric of its company. In fact, when I was holding Google it was trading with a P/E ratio of over 25 (at times) and now trades at 21x earnings, and is growing, roughly, half as fast. Therefore, it seems logical to imply that not only could Apple trade with a P/E of 20 but that its nowhere near reaching its price limit considering its level of growth.
It seems like every week the analysts who cover the stock raise their price targets by $100. I know that Goldman Sachs (NYSE:GS) in particular has raised its target on three occasions, in what seems like, the last three weeks. It was $500, then got raised to $600, and now it's $700, but I think that as investors we sometimes forget just how much larger $100 is for Apple (nearly $100 billion). In fact, I don't think there has ever been a company that has exceeded so many one year targets in only three months of a new year.
I think it's safe to say that not only are analysts incapable of determining the growth of Apple but the stock has hardly come close to reaching its potential. Here lately, there has been a lot of whispers regarding a $1 trillion valuation, and after looking through the facts I believe it is very possible, in 2012. Think about it, Apple trades with a forward P/E ratio of 12.43, which is based on the company's expected earnings growth. But as we all know, the company's virtually shattered all estimates over the last five years and with rumors that it could pursue the TV space, and maybe a potential iPhone 5, and a new tablet that is already sold out I have to believe it will once again exceed all expectations.
Let's just assume that Apple beats earnings expectations by an average of more than 20% and is trading with a forward P/E ratio of near 10.0. This means that if Apple were to stay priced at $600 it would trade with a P/E ratio of 10.0 in 2013. I don't believe it's possible, and I think that with a dividend and all the catalysts for growth that this company has up its sleeve, that it will maintain a P/E ratio above 17, and possibly close to 20. Therefore, I believe it is likely that AAPL reaches a price of $1,000 within one year, and potentially a price of $1,100. If the stock were to reach $1,100 it would trade with a market cap of $1.025 trillion, and I believe that it is very possible, all things considered.
Disclosure: I am long AAPL.
Additional disclosure: The information in this article is for informational purposes only and should not be used to make an investment decision, without the consent of a financial advisor.