Over the past several weeks I've focused much of my analysis work on the performance elements that underpin Apple's extraordinary rates of revenue and earnings growth. Meanwhile, Apple's share price (AAPL) has been trapped in a comparatively narrow and underwhelming trading range since the all-time high of $364.90 was set in intraday activity on February 16th of this year.
There's much speculation why Apple is currently trading, even after today's strong advance, almost 5% off the all time high at Tuesday's closing price of $347.83 per share. From index rebalancing to hedge fund ploys, most active AAPL traders have their own views as to the factors impacting the share price. But none of these factors in any way impact the company's fundamental strengths nor limit the long-term potential of the share price. I consider AAPL's current trading price to represent a short-term dip below an established trading range prior to a strong, bullish advance.
The Factors Supporting AAPL Share Price Appreciation
Rising Revenue, Rising Earnings Per Share: Apple remains in an era of extraordinary revenue and earnings growth. During the first six months of FY 2011 Apple's revenue and earnings growth rates have accelerated due to the popularity of the Apple iPad and the continuing success of the Apple iPhone. In the first six months of FY 2011 Apple's revenue rose 76.2% and eps moved higher by 83.2%. Constraints on iPad 2 supplies in the March quarter limited the revenue and earnings growth rate from moving even higher.
For FY2011 (ending in late September) I forecast Apple's revenue will reach or exceed $112 billion and eps will reach at least $27.50 per share. Based on my forecasts Apple is currently trading at a multiple of only 12.65 times the current fiscal year eps estimate. The revenue growth chart, including my FY 2011 revenue estimate, illustrates the pace of Apple's revenue growth over a six-year period. Over 60% of Apple's revenue in FY 2011 will be sourced from products that did not exist in the marketplace as recently as four years ago today. The markets for the Apple iPhone and especially the Apple iPad have yet to be fully realized and the markets for both products will continue to expand.
Even more dramatic than the pace of revenue growth is the pace of growth in earnings per share. Form eps of $1.55 in FY 2005 to estimated eps of $27.50 in FY 2011.