Add another record to Apple’s (AAPL) list.

Shortly after announcing the world’s largest quarterly profit of $18 billion, it’s now the world’s first $700-billion company.

Its market cap sits at $763 billion – greater than the GDP of all but 23 countries in the world, based on CIA estimates.

[ad#Google Adsense 336×280-IA]It’s an incredible mark, considering Apple was flirting with financial ruin in the late 1990s.

But even after the record-setting run, billionaire shareholder, Carl Icahn, believes the company is actually worth way more – $216 per share, or about $1.3 trillion, to be exact.

While I don’t agree with Mr. Icahn’s math, I do believe Apple is a “must-own” stock – and is destined to become the world’s first trillion-dollar company… under three conditions…

Does Apple Really Trade at a Discount?

I’ve been banging the table to buy Apple shares ever since January 2014. Back then, the stock traded at a split-adjusted price of roughly $70.

Fast-forward to today… and it’s rocketed up by nearly 90%. That makes it a bit harder for me to be as optimistic.

As for Mr. Icahn? Not so much.

His $216 price target implies another 63% upside from here. And he explained his rationale in a recent open letter to Twitter (TWTR) followers:

“It seems to us that the market is somehow missing a very basic principle of valuation: When a company’s future earnings are expected to grow at a much faster rate than that of the S&P 500, the market should value that company at a higher P/E multiple.”

While his logic is sound, there’s a minor problem.

Apple has grown faster than the market for years. Yet the stock has seldom commanded a premium market multiple.

In fact, since 2011, it’s actually traded at an average discount of 20% to the S&P 500 P/E ratio. And if we strip out Apple’s cash, the discount is even more pronounced.

What gives?

Simply put, investors realize that Apple’s colossal size makes it that much harder to move the earnings’ needle. It’s the law of large numbers at work. Accordingly, they’ve assigned a discount to the shares, not a premium.

And I’m afraid there’s no valid reason for investors to suddenly start valuing the company differently, no matter how much Icahn tries to convince them otherwise.

So how much is Apple reasonably worth, then?

Three Key Drivers to $1 Trillion

I’m with Barclays’ analyst, Ben Reitzes, who says Apple’s stock is easily worth $150 – 15% higher than today.

His calculations are based on the fact that Apple’s enterprise-value-to-free-cash-flow ratio is cheaper than almost any other stock in the market.

As Reitzes says, “We believe Apple can continue to nudge higher, despite its large market cap.”

But to reach the $1-trillion valuation, Apple needs to do more than “nudge” higher. It needs to shoot approximately 30% higher, to $172.

And that’s possible in the next 18 to 24 months because of three powerful catalysts…

Apple Catalyst #1: iPhone Sales

Apple blew the doors off all estimates last quarter, selling 74.5 million iPhones, versus expectations for 66 million.

And the stage is set for the momentum to continue. Here’s why…

Upgrades: Only 15% of consumers have upgraded to the new iPhone 6 or 6 Plus, according to Canaccord Genuity analyst, Michael Walkley. That means there are another 343.4 million potential upgrades still to come this year.

Converts: Beyond upgrades, Apple is also gaining new converts. As Tim Cook noted, the majority of iPhones sold last quarter (about 85%) were to people who owned Android phones.

Overseas Expansion: This is Apple’s biggest sales potential. Consider:

  • The newest iPhones are now available in 130 markets, at over 370 carriers globally. That’s the fastest expansion ever.
  • Sales in China topped $38 billion last year, up from less than $1 billion a couple of years ago. Yet, Apple still only has about 20 stores in greater China. It expects to double the number by mid-2016, which should fuel sales further.
  • China isn’t a one-off overseas market. Cook sees a similar opportunity to expand in India, which is just beginning to ramp up.

Apple Catalyst #2: Apple Watch

Is Apple’s Watch going to be the next big flop, or the first wearable device to genuinely gain mass appeal?

Too many “smart” people believe it’s the former – something that excites the contrarian in me! Remember, these “experts” said the same thing about the iPad – and Apple sold over 21 million iPads in the last quarter.

I’m convinced that the stage is set for Apple to again prove the doubters wrong. Why?

Fashion: The Watch is the first wearable that actually looks fashionable. All others resemble a computer that’s Scotch-taped to the user’s wrist!

Convenience: This should be another driving factor for Watch sales. After all, it’s far less intrusive (or rude) to glance at your wrist to read a text message or see who’s calling then it is to pull a phone out of your pocket.

Failure Not an Option: As I recently told a CNBC reporter, “Apple cannot afford to misfire with the Apple Watch. It’s too big of a company for any product to be a failure.”

The company is obviously planning for success, too.

The Wall Street Journal reports that Apple placed an initial order of five to six million units ahead of the watch’s release in April.

Keep in mind, some analysts only expect the company to sell 10 million units for the entire year. Based on Apple’s actions, analysts could soon be scrambling to raise their estimates and price targets.

Apple Catalyst #3: Apple Pay

Until now, no mobile payment solution has really captivated the masses. But I’ve long contested that Apple possesses the three main ingredients for success here – familiarity (i.e., brand recognition), simplicity, and security.

And the early data suggests that with Apple Pay, the company is on its way to becoming the dominant player in this field. Consider:

  • Apple has forged relationships with 750 banks and credit unions, covering 90% of U.S. credit card accounts.
  • Despite launching in October 2014, Apple Pay already accounts for two out of every three dollars spent with Visa (V), MasterCard (MA), and American Express (AXP) via contactless payments.

With retailers constantly asking to sign up, even Cook says, “It’s going much faster than I thought it would.”

Of course, we’re still in the early innings of the growth for Apple Pay.

Only about 8% of U.S. retailers currently accept it. But by the end of this year, 38% of retailers plan to enroll, according to a new survey from Boston Retail Partners.

Not only that, a rollout in overseas markets in the first half of this year promises to multiply the growth potential for Apple Pay.

An All-or-Nothing Bet

Let me make one thing clear here – this is an all-or-nothing proposition.

Assuming investors continue to value Apple at a discounted multiple to the market, the company is going to need all three catalysts to kick in if it wants to grow earnings fast enough to reach the $1-trillion valuation mark.

Any missteps or slowdowns, and the earnings growth rate won’t be high enough… and we’ll have to wait a little longer to crown the first trillion-dollar company.

Bottom line: Whether you believe Reitzes, Icahn, or yours truly, the consensus is clear: Apple’s stock is headed higher. Don’t miss out.

Ahead of the tape,

Louis Basenese

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Source: Wall Street Daily