Even though the S&P 500 has been rising in 2021, up 4% as I type this sentence, Apple stock (AAPL) continues to spin its wheels: -9% year-to date, and still well into correction territory from the late January peak.
After witnessing two stellar years of performance, Apple investors must be wondering if shares still have room to grow, following such a weak start to 2021. So, I asked folks on Twitter how confident they were that the Cupertino company’s stock could be at $150 per share by year-end:
The road to $150
Apple shares at $150 represent 25% upside from current levels, which is a very respectable rate of return for a stock that has been on fire for a couple of years at least. At that price, the company’s equity would be valued at roughly $2.5 trillion.
To get to those levels, one of two things (or a combination of both) would need to happen: (1) an increase in earnings expectations and/or (2) valuation multiple expansion. Think of the P/E ratio formula, in which stock price equals earnings times valuation multiple.
Increase in 2022 earnings estimates
Apple’s earnings estimate for fiscal 2021 is currently $4.45, according to Stock Rover. By the time the year comes to a close, Wall Street analysts and investors will already be looking at 2022 EPS to estimate the stock’s fair value. Next year’s EPS projections currently sit at a consensus of $4.68.
Without the need for P/E expansion, Apple could get to $150 per share by year-end if 2022 earnings estimates climb about 20% to $5.60. This is quite a bump in bottom-line expectations. I believe that the feat could be accomplished if some of the following happens:
- The iPhone 12 proves successful, as it seems to be, and is followed up by increased optimism for the iPhone 13 cycle;
- Demand for the Mac and iPad remains high in the reopening year, proving that the devices can sell through even without the tailwinds of the stay-at-home economy, or;
- A combination of stronger-than-expected growth in services and/or wearables, maybe supported by the launch of the first mixed reality devices next year.
The other way that Apple shares could get to $150 is through P/E expansion. The current-year multiple is now 27 times. Generally, one of a couple of things are needed to support a bump in valuations: (1) a drop in interest rates or (2) increased expectations for longer-term growth.
The first item above is outside Apple’s control. The bad news is that yields have been climbing, not dropping. The reopening of the economy could spark a rise in inflation, which would likely send interest rates in “the wrong direction”.
The second item could be driven by the introduction of new products, particularly the Apple Car. Should the company’s new ventures create expectations for higher earnings in the farther future, investors might very well be willing to pay more for Apple’s 2022 earnings.
Assuming no increase in 2022 EPS estimates, Apple stock’s earnings multiple would need to expand to 32 times by year-end to support a share price of $150. For reference, Apple’s P/E reached those levels in the third quarter of 2020, and for a couple of days in January 2021. In both cases, the stock came crashing down soon thereafter.
What does Wall Street think?
Interestingly, analysts have a consensus price target of $148.25 per share on Apple stock, which is close enough to 25% upside potential. The Street high is currently $175, a target held by Wedbush and Evercore ISI. The Street low is around $80, compliments of the Apple bears at Goldman Sachs.
Explore more data and graphs
The data used in this report was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.
To learn more, check out stockrover.com and get started for as low as $7.99 a month. The premium plus plan that I have will give you access to all the information that went into my analysis and much more.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)