Apple's (AAPL) Q4 of 2011 was just what it needed to finally take the top spot for good. With sales of the iPhone 4S driving profits, the Cupertino, CA giant cleared $500 a share earlier this month and is now over $65 billion ahead of Exxon Mobil (XOM) for the biggest company in the world by market cap. It's a sign of the times that a maker of high-end technology products has so thoroughly trounced the rest of the world's businesses.
However, what does this mean for Apple's future? Some argue that the innovation that's carried Apple this far will continue to translate into massive profits as the company expands into new markets while continuing to dominate its traditional spaces. However, others claim that Apple has already grown so large that it's reaching a peak that it cannot hope to overcome. Is Apple headed for even bigger and better things or does it have nowhere to go but down?
Apple's Still Climbing
Apple's most recent earnings report would seem to support the idea that the company has nowhere to go but up. The success of the iPhone 4S seemed to establish that new iterations of old products still have real power to generate massive sales. However, Apple also has a number of areas it intends to expand into. Most notably, Apple's foray into television could make for even more penetration into the everyday lives of its loyal customers. As entertainment appears poised to trend more and more towards online, streaming content, Apple TV appears to be one of the dominant new brands in a growing market.
However, what might be most interesting about Apple is that its valuations, in many cases, appear to point towards a still-undervalued share price. While Apple's P/B of 5.33 is very high, the P/E is under 15, the foward P/E is just under 11, and the PEG is 0.78. All of this points to a company that, regardless of anything else, has a share price that's still low based on its earnings. These earnings, powered by an operating margin approaching 35 percent and a profit margin over 25 percent, could power Apple's shares into even more growth and break into new territory yet again.
Apple's Peaked Out
However, there are also those skeptics who don't see Apple continuing its wild run in the long term. Certainly, the company seems to be invincible at the moment, offering top-tier product quality and charging top-tier prices for it. However, Apple's ability to continue completely dominating the markets that it created could be brought into question.
Apple may have effectively invented the smart phone and tablet, and it may continue to offer the most popular product in both segments, but the influx of new brands coming from well funded and innovative companies means that it's hard to see Apple continue to hold all of its market share. Smart phones from Google (GOOG) or tablets from Amazon (AMZN) may never outsell their Apple rivals, but increased penetration of these brands over time could eat into Apple's incredible earnings.
Another cloud looming over Apple is how the loss of Steve Jobs, the founder and creative engine for the brand, will affect the company in the long term. For the moment, pending releases like the iPad 3 and iPhone 5 were developed under Jobs. But as time wears on, Apple will have to prove its ability to continue creating innovative products that consumers view as must-have items at any price. And, with an increasing number of options available, the bar will continue to rise for these new products. While it's reasonable to believe that Apple will continue to create quality products, many doubt that it can continue to offer the same level of innovation without Jobs pulling the strings.
Only time will tell what the future holds for Apple. Tim Cook, Apple's current CEO, clearly has big shoes to fill, and it's still not clear how much longer he can keep this sort of momentum going. However, with billions at stake, the debate over Apple's future is sure to continue for some time.
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