The Race To A $1 Trillion Valuation
The race to become the first $1 trillion market cap U.S. company comes down to Apple, Google and Facebook. As it currently stands Apple’s market cap is $665 billion, Google’s market cap is $530 billion, and Facebook’s market cap is $300 billion.
The non-gaap estimated 2016 PE ratios for the three companies are 11x for Apple, 22x for Google, and 37x for Facebook.
The estimated five year growth rates for the three companies are 15% for Apple, 16% for Google, and 30% for Facebook.
The company most likely to reach the $1 trillion valuation level first is Apple. Since valuation is very low at 11x earnings, if the stock commands a PE ratio of 15, the valuation would approach $1 trillion. This could happen as early as next year if market sentiment turns positive on the stock. In fact, Apple was recently added to the Goldman Sachs conviction buy list with a 1 year price target of $163 (which implies a 40% rise from current levels).
Google has a chance to reach the $1 trillion valuation mark, but we feel that it would take a little longer to achieve that level. The shares have already risen 44% in 2015, and the valuation is approaching a relatively high level in terms of their earnings growth. Google’s continued growth in mobile advertising and initiatives like YouTube should help the company achieve that level, albeit over the longer term.
Determining when Facebook will hit the $1 trillion dollar valuation level is harder to assess. Since the company is experiencing rapid growth, the stock could command a very high multiple. Additionally, Facebook has beat earnings estimates every quarter since it went public, therefore earnings estimates in the future maybe too low. The combination of better-than-expected earnings growth with a high valuation can catapult Facebook to a $1 trillion valuation earlier than many would predict. For example, if the company grows its earnings at 40% for the next three years, earnings could top $6 per share in 2018. If Facebook commands a 40 PE multiple on those earnings, that would put the stock at $240. That in turn would lead to a valuation of around $700 billion. Facebook could reach the $1 trillion valuation mark as early as 2019 if they continue on their upward growth trajectory.
Taking into account all the factors mentioned above, the company most likely to reach the $1 trillion valuation first would be Apple, followed by a tight race between Google and Facebook. Of course there are a lot of assumptions built into what the estimated stock prices will be for these companies in the future. Overall, it’s fair to say that the first $1 trillion company will be one of these three leading tech names.
Ideal Asset Management’s Take:
Ideal Asset Management believes that all three companies are worthy considerations for an investor’s stock portfolio. Apple is a great value stock, and Google and Facebook are solid growth stocks with dominant positions in search and social advertising. In time all three of these companies may breach the $1 trillion valuation mark.
All of the ideas expressed in this article are the opinions of Ideal Asset Management LLC
Ideal Asset Management currently owns FB, GOOGL, AAPL for its clients
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