Poetic Portfolios

I don’t usually like to comment on share price movements, but Apple (NASD: AAPL) has shown quite a jump over the past couple of days. Shares are now priced at $184, up from their 52-week low of $78.20.

According to John Paczkowski of Digital Daily, an analyst at Neeham and Company recently issues a price target of $235 per share. This seems crazy on the surface, but the thesis makes some sense. The analyst assumes that the iPhone captures 20% of its market, up from 12.5%. The thought is that software apps will drive hardware adoption.

I’m not quite as skeptical as H.J. Huneycutt when he says, “Great company or not, it simply doesn’t look attractive over $170.” However, I do recognize that Apple must continue to innovate for their growth to continue.

Apple had operating cash flow of about $9.6 billion in 2008, and it has a market cap of about $165 billion or so. It doesn’t look like an overvalued company on that basis. Still, there is a certain gravity pulling on a company like this. They make cool stuff. People want their cool stuff, and many already have their cool stuff. So how much are people willing to pay to upgrade to their cooler stuff next year? The year after that?

For now, I want to own some Apple shares. They are a very strong company that still has upside to their revenue and earnings. In my estimation, they could reach a $300 billion market cap over the next five years. That would equate to about 15% annualized growth. To achieve these growth rates, however, they must continue to raise the bar on their innovations annually. At this point, I’m not betting against a company that has achieved so much success.

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This entry was posted on Friday, September 18th, 2009 at 10:22 am and is filed under Apple. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.