For a while it looked like Amazon (AMZN - Free Report) had a chance to be first, but after the recent May rally after issuing strong earnings and guidance, Apple (AAPL - Free Report) is on the cusp of being the first company in history with a market capitalization north of a trillion dollars.
With its current share price of $193, Apple is only about $4/share away from that elusive valuation. The exact share price at which they pass the trillion dollar mark is a bit of a guess because of the effect of share repurchases on the number of outstanding shares on any given day, but $197 or so is as good an estimate as any.
Does the milestone really matter to investors? In a word, no.
It’s certainly an unbelievable accomplishment to reach that valuation, which was once thought of as unattainable.
There are countless comparisons and superlatives to describe Apple’s size.
Apple is worth about the same amount as Berkshire Hathaway and J.P Morgan Chase – the 8th and 9th biggest stocks by market cap - put together.
If you use revenues as a proxy for GDP in U.S. dollars, Apple - a single company with $260B in annual sales - would be the 44th biggest country on Earth.
$1 trillion is, after all, an arbitrary number. Traders and investors are often psychologically drawn to round numbers (especially very large numbers), when in fact the marginal differences around those numbers could mostly be described as “noise.”
What’s more impressive about Apple is the path they took to get to this point and how well situated they are to continue that growth.
First, in terms of earnings, Apple seems to be valued very fairly. The current rally is far from a speculative bubble. Apple currently trades at a 12 month forward P/E ratio of 16.8X, roughly in line with the S&P 500 at 16.9X. Apple is expected to grow earnings at an annual rate of 24% in 2018 and 12% in 2019.
From near collapse and a share price of less than $1 (in current terms) in the late 1990’s, Apple has grown to produce an incredible ecosystem of goods and services. It’s tough to find someone who doesn’t own at least one Apple product and most people own several. Smoothing out the demand cycle for hardware, Apple also sells a wide range of in demand services, music, movies books, etc, and that demand is extremely “sticky”, meaning the more Apple products a consumer buys, the more they want Apple’s complimentary goods and services.
So the milestone $1 trillion price level is a feather in Apple’s cap and it will get plenty of press when it happens, but Apple’s really important accomplishment has been the ability to anticipate the wants and needs of customers and then deliver at exactly the right time. In that respect, they show no signs of slowing down now.
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