Apple’s [AAPL] share price has rebounded spectacularly since wiping out $254bn off its market cap during the pandemic outbreak between February and March.
Its share price has climbed 65% from its deepest low of $223.76 on 23 March to reach a high of $373.85 on 6 July.
Apple’s share price repeatedly beat all-time highs throughout June, breaking above $352.08 on 16 June before hitting a record high of $366.53 on 23 June.
Given that Apple’s share price has trended far above the $200 level for a year now, is it considered overvalued?
What’s driving Apple’s share price?
Apple’s share price gains boosted its market valuation to a record $1.639trn as of 7 July, making it greater than the combined market caps of Facebook [FB], Netflix [NFLX] and Tesla [TSLA] at the time.
In fact, the gains over the second quarter mark “the biggest value spike in the annals of world capitalism,” according to Fortune.
Apple’s share price spike was supported by a slew of announcements made at its Worldwide Developer Conference in late June, where Tim Cook, CEO of Apple, highlighted people’s burgeoning reliance on the company’s products.
The tech giant confirmed that it would put custom processors in MacBooks and promised deeper integration among its operating systems.
Analysts felt the annual event provided reassurance that the company was still driving innovation, according to MarketWatch.
“Perhaps the biggest takeaway from today’s event was the reassurance that Apple is still driving innovation and new ways to use technology hardware and software,” Wamsi Mohan of Bank of America said in a note, according to MarketWatch.
“Perhaps the biggest takeaway from today’s event was the reassurance that Apple is still driving innovation and new ways to use technology hardware and software” - Wamsi Mohan of Bank of America
Other analysts impressed with Apple’s announcements included Tim Arcuri, an analyst at UBS, who kept a buy rating on the stock but upped his price target to $400 from $325.
He said the event marked “a continuation of its strategy of vertical integration following years of convergence in its mobile and MacOS”. Elsewhere, Andrew Uerkwitz, equity researcher at Oppenheimer, reiterated an outperform rating and $320 target price.
Is Apple’s share price sustainable?
Many will question whether the promise of deeper integration across its business is enough to keep Apple growing.
Over the last five years, Apple has been able to deliver a roughly 20% return because its shares were relatively cheap, according to Fortune.
Back in March 2015, its P/E multiple was as low as 15. As of 7 July, however, it stands at near 29.72, which makes it unlikely that investors or traders will see similar growth in coming years.
“The new Apple math, dictated by its current high price that makes a higher P/E unlikely and buybacks less potent, points to future returns that are about one-third of its 20% gains over the past five years,” Shawn Tully wrote in Fortune.
“Of course, it’s possible that Apple will expand profits a lot faster…Its champions cite strong growth in its wearables and services franchises. On the negative side, sales in its flagship iPhones, and total profits, declined in the March quarter.”
“Of course, it’s possible that Apple will expand profits a lot faster…Its champions cite strong growth in its wearables and services franchises. On the negative side, sales in its flagship iPhones, and total profits, declined in the March quarter” - Shawn Tully
iPhone 12 performance
In the more immediate future, Apple’s upcoming release of the iPhone 12 with 5G upgrades is what will likely drive its stock further up, or drag it back to reality.
Daniel Ives, an analyst at Wedbush, believes that Apple’s stock could eventually hit the $500 mark if pent-up demand drives iPhone 12 sales and China sales rebound, MarketWatch reported. Ives says the stock has a “lot of gas left in the tank” and recently lifted its price target to $425 from $375, the Motley Fool reported.
Releasing the new range of phones during the aftershock of the pandemic may also have some in-built difficulties, however.
“The big question is how the coronavirus might impact the iPhone 12 launch,” Louis Navellier, wrote in InvestorPlace, citing production delays and the reopening of Apple Stores as headwinds.
“Then there’s the question of whether consumers suffering through months of record unemployment will have the money to shell out for an expensive new iPhone.”
“Then there’s the question of whether consumers suffering through months of record unemployment will have the money to shell out for an expensive new iPhone” - Louis Navellier