Long before Apple’s CEO Steve Jobs passed away, there was speculation that the company would never attain the heights it had achieved under his leadership. Investors were skeptical that Apple and its stock (AAPL) could maintain the same level. Ironically, the company and its share price have done even better than could have been expected, with share prices rising to $377 (the day of Jobs’s death) from just $85 in 2007 (when the iPhone was released). Today it stands at well over $600.
There continue to be rumblings among stock analysts that Apple stock is overpriced, and the company’s best innovative products and salad days are behind it. However, what that analysis fails to take into account is the huge market that still exists, waiting to be tapped by Apple, which will help sustain company growth for many more years to come. In fact, Apple stock is not overpriced, it’s a bargain, if a smart investor knows how to look at the future potential.
In fact, Apple today has strong financials that recommend it. For example, it has a great price-earnings (P/E) ratio among tech stocks. Companies such as Google and Amazon are far less admirable. Its revenue and profits have surpassed expectations. However, those strong figures have spooked some investors who worry that the company may be peaking with nowhere to go but down in share price.
However, by examining its two biggest selling products at the moment (the iPad and iPhone), it is clear that there is still plenty of room for the company to grow. They have only begun to dip into the huge market that awaits.
Market for smart phones
Nothing makes this room for growth more apparent than looking at the smart phone business. For Apple, that means sales of its iPhone. It’s not just those lines of people standing for hours in front of Apple stores that provide a good indication of where sales can go.
For one thing, data on cell phone usage shows that today worldwide only 3 of every 10 cell phones in use is a smart phone. As more users move to smart phone technology, there is increasingly room for tremendous growth for companies with innovative products. The iPhone may not necessarily be the phone of choice for every customer due to its price point, but the phones that Apple does sell bring a much higher profit to the company than those of its competitors (Android phones), thus assuring the company of much larger gains in its profit margin.
The tablet market
An even better situation exists for the company in the computer tablet market, where the iPad has been selling in record numbers (millions) for record profits (billions). As other companies enter the tablet game, Apple will lose sales, but the company has already made huge inroads that assure its place as king of the hill (much as Microsoft did with the PC). Today Apple is the most profitable company operating in this burgeoning new tablet marketplace.
What Apple’s future holds in terms of new products and directions (such as the dividend payout recently announced) being taken by its new CEO, Tim Cook, are not known. However, even with the loss of a charismatic, visionary like Jobs, the company is still set to succeed. It all comes down to math: There are big markets ahead, and no other company is poised to reap the rewards the way Apple can.