With shares of Apple currently trading at a 52 week high of $185, one has to wonder how much higher it can go in light of reports that Apple may soon recognize all revenue from iPhone sales at the time of purchase, instead of spreading it out over a period of 24 months.
Stevan Sidahmed of Seeking Alpha writes that it’s not unfathomable for Apple’s share price to continue to skyrocket, and that it may very well double in price in the coming months.
Under current GAAP rules, for Apple to meet analyst expectations for 2010 they only need to sell as many computers and iPods as they did in the first 3 quarters of 2009. No iPhones need to be sold to meet analyst expectations…
As I said in my last article, “Apple’s iPhone Subscription Accounting Leftovers,” should FASB approve the accounting rule change, Apple would post 2010 earnings exceeding $12 on top of the nearly $4 in deferred iPhone earnings for total GAAP earnings of $16.
A forward P/E of 20 to 25 on GAAP earnings of $16 equates to a share price of $320 to $400 and cash has not even been discussed. As of Q3 2009, Apple had over $31B, or $35/share in cash and equivalents. By the end of FY2010, Apple should have over $45B in cash, equal to $50/share.
So, even after more than doubling from less than $80/share to over $180/share, Apple can still double – again.
There’s also a rumor floating around that has Apple purchasing back a good chuck of its own shares, which would make Apple shares that much more stronger. Last we heard, Apple has no intention of splitting its shares anytime soon, but if the stock continues its upward trend, it’ll be interesting to see if Apple has a change of heart or if it decides to go the way of Google and ride its stock price into the hundreds without even looking back.
September 18th, 2009 at 2:39 pm
It seems hard to believe that changing GAAP rules would have any noticeable impact on AAPL share price.
Are investors so stupid that they can’t do a little arithmetic to judge the value of AAPL?
If the GAAP rules are updated, Apple, Inc.’s actual sales and cash flow won’t change at all. It’s still the same company with the same business.
I own a bunch of AAPL so I would be thrilled if share price jumped higher.
I’ll ask again (I really enjoy it)…. Are investors so stupid that they can’t do a little arithmetic to judge the value of AAPL?
September 18th, 2009 at 2:42 pm
As for share buyback – ain’t gonna happen.
Apple doesn’t do financial shenanigans like share buybacks (which studies show don’t pay off for the companies that do them).
I expect Apple to do absolutely nothing with their ridiculously large pile of cash other than sitting on and occasionally making a very small (relatively speaking) aquisition (e.g. P.A. Semi).
September 22nd, 2009 at 1:17 pm
Perhaps everyone should check Jim Cramer’s discussion on this. Edible Apple did report on it on 9/15/2009 but didn’t provide all the detail
check it out here
http://blogs.barrons.com/techtraderdaily/2009/09/16/apple-cramer-sees-stock-soaring-on-accounting-change/
Watch the video
He explains his thinking very clearly and he notes that it is the analysts that don’t look at the details they just look at ratios that don’t account for the spread of revenue over 24 months. So when the accounting rule changes then the ratio drops and the stock will climb.