As incredible as it seems, Apple Inc. (Nasdaq: AAPL) is on track to become America's first $1 trillion company by 2018.
That means the Apple stock price will need to get to about $167 a share, a fair distance from its current $102.50 a share and market cap of about $613.5 billion.
But given the trajectory of its current businesses, as well as the additive punch of several new areas Apple will soon enter, a market cap of $1 trillion is a very attainable target. Lately AAPL stock been on the move; just this morning (Friday) it set a 52-week high of $102.90.
It would set a mark in the corporate world that few companies have ever come close to reaching.
Apple itself reached a peak valuation of about $657.8 billion back in September of 2012, when AAPL stock hit its pre-split high of $702 a share.
The next closest was Apple rival Microsoft Corp. (Nasdaq: MSFT) which hit a market cap of $616 billion in 1999, at the peak of the dot-com bubble. Some argue Microsoft holds the U.S. crown if you account for inflation, which would put its 2014 equivalent at about $875 billion.
When its stock price tripled that day, PetroChina had a market cap of $1.2 trillion - but the shares almost immediately started falling. Since then its valuation has dropped to under $300 billion.
All this shows how excruciatingly difficult it is for any company to reach the $1 trillion mark.
But Apple can do it, and almost certainly will.
When you break it down, the company's businesses are more than capable of generating the profits required to get the AAPL stock price where it needs to be - just look at these numbers...
Before we get to how Apple's businesses will push the company to a $1 trillion valuation, let's look at the numbers Apple needs to hit to get it there. (Note: I'm going to set aside Apple's ongoing stock buyback program for consistency's sake.)
For the past twelve months, Apple's earnings per share are $5.96. To get to the target AAPL stock price of $167, the company will need to add about $4 per share in earnings. An EPS of $10 and a P/E multiple of about 17 - right where it is now - gets the Apple stock price to $167.
An EPS of $10 translates to about $24 billion in additional profit, and yes, that's a mountain of money. For perspective, Microsoft's total profit for its most recent fiscal year was $22.07 billion.
And yet, it's completely feasible.
It breaks down to about $1 in additional EPS per year. AAPL is already expected to hit that target in 2015, with analysts currently projecting next year's EPS at $7.05.
Here's how Apple gets the profit it needs by 2018 to reach a $1 trillion market cap:
All that brings us to just under $24 billion - but this scenario could actually turn out to be conservative.
For one thing, it's possible that Apple will enter another new product category over the next four years, such as television, that would be accretive to earnings.
AAPL stock could also rise faster if the company's gross margins start to rise, which tends to nudge up a company's P/E ratio. At 17, Apple's P/E is already well below the tech industry average of 26.
And Apple's margins have an excellent chance of rising over the next few years. That's because the iTunes Store/software and services segment has margins of about 77%, much higher than even the iPhone's. As that segment becomes a bigger factor in Apple's earnings, it will pull up the overall margins.
So if Apple's P/E rises just to 18.5, the EPS need only rise to $9 a share to reach the target AAPL stock price of $167 required to hit a $1 trillion valuation.
In fact, if the P/E rises, AAPL stock could hit the target well before 2018.
Somewhere, Steve Jobs is smiling.
For updates on Apple stock and other technology news, follow me on Twitter @DavidGZeiler.
UP NEXT: For much of this year, Money Morning Defense & Tech Specialist Michael Robinson has been calling for Apple stock to hit $1,000 a share within 24 months. Of course, now that AAPL stock has split 7-to-1, his target price is a much less round $142.85. Here's why Robinson is so incredibly bullish on AAPL right now...
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.