By Stephen Nellis

(Reuters:) Is Apple Inc. (NASDAQ) truly worth $3 Trillion 16 months after being the first company to achieve a $2 trillion valuation?

How one looks at the iPhone manufacturer’s ability and inability to sustain the unparalleled growth that it has experienced over the past fifteen years will determine the answer. Apple’s last fiscal year, which ended September 25, saw a 33% increase in revenue to $365.8billion. This was due to the strong demand for iPhone 5G upgrades.

However, this growth came after single-digit sales growth for the previous year and fiscal 2019, when Apple sales fell.

Apple’s positive case is its 1 billion iPhone owner ecosystem that spends money on services. It is also well-positioned to compete in future categories such as self-driving vehicles and augmented reality.

Apple is now proving that its iPhone sales dependance has ended. Apple also proved that Apple’s stock was a great investment because it has diversified beyond the iPhone.

Apple is an extraordinary growth story, anchored by essential products and growing services. While years ago the stock price was a value investor’s dream, I don’t think the current near-record high price should be a sell signal for long-term focused investors,” said Trip Miller, managing partner at Gullane Capital Partners.

Apple trades at around 30 times expected 12-month earnings. This is a slight decrease from 32 multiples in the early 2021. However, it remains at levels not seen since 2008 according to Refinitiv. Apple shareholder Capital Investment Counsel chief economist Hal Eddins said that Apple had been “safety stocks” during the pandemic, and that they expect solid holiday sales.

Eddins explained that Apple seems to be “vaccinated” against all Omicron’s threats. “I’m not complacent at this level, but there would have to be some nasty unforeseen events to rock the boat.”

Apple, according to some analysts, has a lot of potential for growth in the future with products such as its Apple Car.

We see Apple Car as the best path to double Apple’s market share and revenue. This will catalyze a change in the investor narrative toward Apple Car (1 billion loyal customers), and long-term sustainable growth.” Morgan Stanley Katy L. Huberty, analyst at NYSE: wrote in November a note.

NO GUARANTEES

Apple has reached its limit in growing its user base, and the cash it can extract from each user. The bear case is not that Apple will ever be as successful with future products.

Bernstein analyst Toni Sacconaghi cautioned investors in December that Apple’s prospects for virtual and augmented reality are good but unlikely to make up 4% of the company’s revenue by 2030. He added that it is unlikely that all of those devices will reach the one-billion mark by 2040.

Sacconaghi said that there were “no obvious catalysts to multiple expansion” of Apple’s stock, “given the slower expected growth in the following fiscal year.” The stock has been given a market-perform rating by Sacconaghi.

Apple’s future ability to earn the same profit for paid services and hardware is also a concern. Proposed legislation in America and Europe has targeted Apple’s App Store business model which earns commissions from in-app purchase of digital goods.

Apple’s valuation has ballooned because of its goal to achieve what was at that time nearly $100 Billion in net cash and be net-cash neutral in 2018.

Apple has not given a time frame for achieving this goal. It simply continues to make money, and it is difficult to achieve. Apple earned $104billion in cash operations and paid $106.5billion to shareholders in fiscal 2021. However, its net cash was still at $66 billion as of the end of fiscal 2019.

Apple’s big acquisitions are now out of reach under U.S. antitrust regulators. Apple must instead return capital to shareholders. Tom Plumb (founder of Wisconsin Capital Management) and Apple shareholder.

Plumb stated that they are fighting to hide the fact that they have $100 billion in cash flow per year. You can’t wager against a company with this amount of cash flow.