As the news media has reported, Apple reached $1 TRILLION market cap on August 2nd. This is almost unfathomable to think of, despite other players such as Amazon on the heals of this feat as well. It means that if I owned $50 BILLION of Apple, I’d still only own 5% of the company. Imagine an activist trying to take a stake to do something. Buying even 1% of the company would take a lot of cash (and be highly risky).

So now that we sit at $1 trillion, is that a sign of the top for Apple? Phone growth has slowed and competitors like Samsung have moved in.

However, I don’t think this is the end for Apple. The brand and ecosystem it has should almost be thought of a subscription based business model. Yes, there is an iPhone cycle, but the fact that they are charging a $1,000 per phone should speak to the brand power here. The brand is proving to be a tough moat to break. Samsungs commercials even point to what features they had before Apple, yet recently it was reported that their high priced phones were struggling at a time when Apple raised price tremendously.

The interesting thing is that I think Apple still has room to run here and the stock actually looks cheap, even if we set aside the premium we should ascribe to the brand value.

Below, I share my analysis of cash today + cash I expect them to generate over the next 12 months less their total debt (as the company has said they will remain net debt zero). That means they have $190BN of cash available for repurchases. Let’s assume they use that cash to purchase stock at a price of $247 ( I arrive there by ascribing a 20% premium to today’s price, as the stock will move up with that much additional shares bought).

Apple can repurchase ~770MM shares of the company, or ~15% of the total amount outstanding. 

Then, I compare this new sharecount to net income estimates over the next few years. If I assign just the S&P500s multiple to Apple (even though I could argue Apple deserves a premium given business quality), I see 30% upside including dividends over the next 12 months!

The stock is not dead yet, just because it hit a high watermark.

-DD