Cramer's 'Mad Money' Recap: Apple $1,000 Not Half-Baked (Final)
NEW YORK (TheStreet) -- Rational or irrational? That's the trillion-dollar question when it comes to Piper Jaffray's prediction that Apple (AAPL) could see its shares top $1,000. Jim Cramer told his "Mad Money" TV show viewers Tuesday that it's perfectly rational for investors to doubt this bold target, but after they do the math, $1,000 a share may not seem all that illogical.
Cramer said that analyzing Apple, a stock he owns for his charitable trust Action Alerts PLUS, is just like analyzing any other stock. One must first determine how much the company will earn as earnings, then multiply that number by how much the markets are willing to pay for those earnings.
According to Piper Jaffray, Apple will earn $51 a share by 2013 and up to $80 a share by 2015, a solid assessment, said Cramer, given the company's dominance in smart phones, tablets and computers. But are investors really willing to pay $1,000 a share for those earnings? Cramer said this is where the research gets interesting.
According to Piper Jaffray's research, Apple will be shaving hundreds of millions of dollars worth of market cap from its rivals over the next two years. Yet when analyzing the company to achieve its $1,000 price target, the Piper analyst still values Apple's earnings at just 12 times, less than that of the competition it will continue to crush.
Cramer said that Apple, of course, deserves a multiple far greater than that of the competition. But shares have historically always been valued as the underdog, he noted, so Piper Jaffary just extended that trend into its analysis. And that's why, he said, thinking of Apple as a $1,000 stock is not "irrationally exuberant" as some have claimed, but likely a foregone conclusion.