How Close Apple Is To Being The First Trillion Dollar Company

Will Apple be the first trillion dollar company? Although a lofty goal that no other company has come close to achieving, that question is not so implausible as it once was. With Apple, Inc. continuing to report impressive revenue and earnings and its stock (NASDAQ: AAPL) on an upward trajectory, the one trillion dollar market capitalization mark is not as far off as it used to be. Apple is now the largest company in the world by market capitalization, and with its growth rate showing no signs of slowing and the company expanding its product offerings, it could very well be the first trillion dollar company in human history in the not too distant future.

As of the spring of 2015, Apple is a $762 billion company, based on its market capitalization. That means it is already three-quarters of the way to becoming the first trillion dollar company in the world. AAPL would have to rise by slightly over 31 percent from current levels to reach the lofty one trillion dollar level. That may be a tall order for a company that alreasdy boasts a stock trading at $131 per share and has a lot of good news baked into its stock price, but it is not an impossible threshold to reach. If any company can reach trillion dollar threshold first, Apple is up to the task for a number of reasons.

How You Figure Out Apple’s Market Capitalization

Before we go into the reasons, let us take a look at how a company’s market capitalization is calculated. It is a simple formula. To arrive at a company’s market capitalization, you take the total outstanding shares a company has and multiply the number of shares by the current stock price. That gives you the total value of the company, if for example, another company purchased every outstanding share at the current stock price.

In Apple’s case, there are 5.82 billion AAPL shares outstanding. With a stock price of $131 per share, Apple’s market capitalization is $762 billion. To get to the $1 trillion market capitalization mark, Apple needs AAPL to get to $172 per share, assuming no change in the total number of outstanding AAPL shares.

Apple Has Momentum Running Up Against Its Huge Market Capitalization

Why is it that Apple may be destined to be the first trillion dollar company? Apple has a big head start over the competition for starters. But, beyond their leading market capitalization, the company has a lot going for it that could propel it over the trillion dollar level.

The reality is that Apple has a lot of momentum behind it.   Over the past two years, AAPL has more than doubled in price, as the company has continued to wow Wall Street with revenue and earnings reports that beat Wall Street investor’s expectations.   With Apple’s earnings projected to grow at a considerably faster rate than the growth rate for the average Standard and Poors 500 (S&P 500) stock, investors may eventually reward Apple with a higher price to earnings (P/E) multiple than its currently relatively benign price to earnings (P/E) multiple around 17.

What may be holding Apple’s stock back from trading higher is its huge market capitalization. Stock market participants seem to be in disbelief that Apple can actually continue to rally higher with such a lofty market capitalization. However, just like the unloved stock market rally since the Great Recession, Apple just keeps chugging higher, boosted by solid earnings growth and good prospects for future growth.

Why Apple May Be Destined To Be The First Trillion Dollar Company

There are three major factors that may propel Apple over the trillion dollar mark over the next few years, making Apple the first trillion dollar company in the world.

1. Continued sales growth in their flagship iPhone product is boosting earnings and expectations for AAPL. The iPhone 6 has been a big seller in 2015. Many existing iPhone owners have yet to upgrade to the iPhone 6. Added to that is new iPhone customers that are mushrooming both inside the United States and in foreign markets that Apple is targeting, such as China.       iPhone sales were so strong in the first quarter of 2015 that they came in at 74.5 million in sales versus the 66 million in iPhone sales that analysts were expecting for the quarter. Additional quarters like this should send Apple’s stock closer to the trillion dollar mark.
2. While the jury is still out regarding the ultimate success of the Apple Watch, it has the potential to be a big winner for Apple in the long run. Apple has a way of turning ideas that others think have little value into big winners. If the Apple Watch gets hot, it could provide another boost to Apple’s earnings, propelling the stock even higher. Many analysts have been skeptical about the success of Apple’s Watch. If they are proven wrong, look for upside surprises in earnings and revisions higher in AAPL’s stock price estimates.
3. Apple Pay may be the thing that ultimately makes Apple the first trillion dollar company. The future of money is cashless and paying with things such as your mobile phone. With so many iPhones in circulation, Apple has a huge advantage over the competition as it tries to establish itself as the dominant player in the electronics payment business. Retailers are getting on board and Apple has made agreements with most banks in the United States to accept Apple Pay. Once Apple Pay gets rolling and starts generating revenues and earnings from Apple Pay, the trillion dollar mark could be a foregone conclusion.

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