Today, with Apple’s market cap having breached the $2 trillion threshold for the first time, its shares are up about 230% from that early-2019 low. And while Apple’s EPS has increased some since then, multiple expansion has had a lot to do with its gains.
At its Jan. 2019 low, Apple traded for just 12 times its trailing EPS of $11.87, based on its last four reported quarters. Today, Apple trades for 35 times trailing EPS of $13.15.
Forward EPS multiples are somewhat lower, but still elevated. Apple trades for 30 times a fiscal 2021 (ends in Sep. 2021) FactSet EPS consensus of $15.43.
The broader strength seen in favored tech stocks over the last 19 months undoubtedly has much to do with Apple’s gains. The Nasdaq is up more than 65% since the start of 2019, and quite a few other large-cap tech companies, including the likes of Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report and Amazon.com (AMZN) - Get Amazon.com, Inc. Report, have more than doubled as well.
But company-specific factors -- both in terms of things Apple has done since early 2019, and how investors perceive the company -- have also clearly had a lot to do with Apple’s gains.
Since early 2019, when iPhone sales were under pressure due to softer-than-expected iPhone XS demand and a major drop in Chinese revenue, we’ve seen:
- iPhone demand stabilize in 2019 with the help of discounts and improved trade-in offers, and then get a boost from a stronger-than-expected iPhone 11/11 Pro upgrade cycle.
- AirPods sales take off, and Apple Watch sales continue growing at a healthy clip.
- Services revenue continue growing at a double-digit clip, with Apple rolling out several new services and more recently, reported to be prepping services bundles.
- iPad revenue return to growth following several years of declines, aided by strong iPad Pro demand and a recent pickup in sales amid COVID-19 lockdowns.
- EPS continue benefiting from aggressive stock buybacks.
Moreover, between them, these developments have done a lot to change investor perceptions of Apple.
Whereas Apple was often seen in early 2019 as a tech hardware company that would struggle to grow its top line in the coming years thanks to demand and pricing headwinds faced by its most profitable business (iPhone sales), it’s now often seen as a marquee tech and consumer brand whose core hardware franchises look pretty stable, and which can deliver meaningful EPS growth in the coming years with the help of wearables and services revenue growth, ongoing buybacks and perhaps also new product launches.
At a $2 trillion valuation, Apple is definitely now pricing in such meaningful EPS growth, and perhaps then some. Chances are that the next 200% move higher in Apple’s stock will take a lot longer than 19 months.
But all the same, Apple’s giant 2019 and 2020 gains do carry an interesting lesson about how excessive worries about a spate of negative news can create a buying opportunity in a blue-chip tech stock, and how narrative shifts can drive significant multiple expansion.