Even with recent upward revisions, most analysts are still aiming too low with their Apple stock price predictions.
One big factor restraining the forecasts is how fast the AAPL share price has soared. Apple (Nasdaq: AAPL) stock is up more than 68% over the past 12 months and has doubled over the past two years.
Adding to the modest outlook is Apple's sheer size. The thinking is that the larger a company gets, the more difficult it becomes to achieve meaningful growth. Apple's $745 billion market cap is far and away the largest in the world. That's more than the market caps of Apple rivals Google Inc. (Nasdaq: GOOGL, GOOG) and Microsoft Corp. (Nasdaq: MSFT) combined.
But these analysts underestimate Apple's potential - and the Cupertino, Calif.-based company just gave a perfect example of why...
Apple Stock Predictions Raised - but Not Enough
Apple reported record December quarter earnings last month. And by record, we mean that Apple earned more profit than any company in history.
Since then, two dozen analysts have scrambled to raise their Apple stock price predictions. (Apple stock is covered by a total of 47 analysts.)
On Tuesday, Global Equities Research upped its target for AAPL stock to $165, while Cantor Fitzgerald raised its target to $160.
Of all the current AAPL stock predictions listed on the Analyst Ratings Network, the next highest is $150 (JMP Securities and Barclays).
Remarkably, 22 of the current Apple stock predictions are actually lower than the AAPL stock price today. Even the consensus price target is just $123.41. And three analysts rate Apple stock a "Sell."
But only two of the 47 current price targets are even in the ballpark of how high Apple stock will go...
You see, Apple is on track to become a $1 trillion company within the next few years. Such a valuation requires an Apple stock price of $171.82. AAPL stock closed Wednesday at $128.71.
Analysts' current AAPL price targets are just for one year out - but they are still low. Here's what these analysts are leaving out of their calculations...
What Most Apple Stock Price Predictions Are Missing
Part of the problem analysts have with Apple is that the company's success is almost too good to be true. But sometimes you just have to acknowledge reality.
"You know, there's a lot of stocks out there without the same value proposition, the same global tech ecosystem, companies that don't have nearly [Apple's] margins that are selling at substantially higher than $170 a share," Money Morning Defense & Tech Strategist Michael Robinson said in a Tuesday appearance on the FOX Business program "Varney & Co."
Quite simply, the numbers justify a much higher Apple stock price. Even the consensus estimates of the analysts themselves make it clear AAPL stock is worth more than the $123.41 consensus.
The consensus for Apple's 2015 fiscal year earnings is for $8.42. With the current price/earnings (P/E) ratio of 17.43, that puts the Apple stock price at $146.76. The 2016 consensus is for $9.10 a share, which would make AAPL worth $158.61.
These estimates appear to underestimate the impact of such new ventures as Apple Pay as well as the Apple Watch, which is expected to go on sale in April.
The Wall Street Journal reported this week that Apple has ordered 5 million to 6 million Apple Watches for its debut. Depending on pricing of the high-end versions, which are encased in 18-karat gold, the Apple Watch will add about $2 billion in profit to the company's bottom line - per quarter.
If Apple sells 15 million Watches on the year, that's an extra $1.00 of EPS for the fiscal year. But several analysts are calling for sales of 20 million, 30 million, or more. That could put Apple's 2015 EPS ahead of the 2016 projections.
Then you have the impact of yet-to-come Apple projects. Granted, it's hard to factor in such unknowns. But Apple is surely working on new product categories that will add to the value of AAPL stock.
"There are products that we're working on that no one knows about. That haven't been rumored about yet," Apple CEO Tim Cook told Charlie Rose last September.
We got news on one of these projects just last week...
Future Products Will Propel AAPL Stock Higher
The Wall Street Journal reported Feb. 13 that Apple has "several hundred" employees working on developing an electric car, code-named "Titan."
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Making an electric car would be an audacious move for Apple, but one that would help expand the reach of its powerful ecosystem. And the global auto market is huge - more than 80 million cars are sold each year.
Apple would only need a tiny slice of that market to generate significant profits. And a car is just one of many possible new Apple projects.
You see, Apple's proven ability to enter and make an impact on new markets is a factor not often taken into account when analysts make Apple stock predictions.
Granted, it's a hard thing to quantify. Yet it's key to an accurate Apple stock prediction. New businesses are responsible for most of AAPL's 9,741% increase since the iPod debuted in October of 2001.
Activist investor Carl Icahn raised eyebrows recently for saying AAPL stock is worth $216 a share. One argument he makes is that Apple deserves a much higher P/E based on its ability to accelerate earnings through innovation.
"This is not a future price target," Icahn wrote in a Feb. 11 open letter. "$216 is what we think Apple is worth TODAY."
Icahn's valuation may be optimistic, but he gets what drives Apple stock. And time will prove him closer to the mark than most of the analysts.
Another Apple Stock Prediction Coming True: More than a year ago, before Apple stock split, Money Morning's Michael Robinson predicted AAPL would hit $1,000 a share by Labor Day 2016. After last year's 7-to-1 split, that target became $142.85. But one thing hasn't changed. Robinson has three reasons why he's more certain than ever that his prediction is coming true.
Follow me on Twitter @DavidGZeiler.
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.