Motley Fool: Apple is overbaked right now

“It’s hard not to love Apple. If you’ve ever used a PowerMac or an iPod, you’ll know that the company delivers creative products that keep it streaks ahead of the computing industry pack. Its valuation, on the other hand, is another matter. As likeable as the company may be, its price has gotten ahead of itself,” Ben McClure writes for The Motley Fool.

“Despite a weak computer market, Apple shares have surged almost 30% in the past three months. Much of that momentum comes thanks to investment lured by the success of the iPod and iTunes,” McClure writes. “At 37 times 2004 earnings and 30 times 2005, Apple looks pricey. Even if it pulls off a 20% earnings growth over the next three years, that still puts it trading at a generous PEG of 1.6. If iPod runs out of steam, Apple’s earnings will most likely decline. Further, the stock trades at a 50% premium to Dell, which itself trades on a rich multiple. Don’t get me wrong. I love Apple, especially when it’s hot. But I don’t like it overdone.”

Full article here.


  1. take $12 a share of the $28 price to give you you’re new PE ratio. This gives us 21 times 2004 (based on your numbers) and 17 times 2005 earnings (based on your numbers).
    Makes it a little more reasonable odesn’t it? I have a $40 price target for the stock and I did buy it last year ” width=”19″ height=”19″ alt=”wink” style=”border:0;” />

  2. you’re probably wondering why you should take that $12 off right…heh heh sorry…Apple has $4.5 billion in cash and no debt. Works out to $12 a share approx.

  3. Even Motley Fool can be off…
    It is time to start looking at what Apple is doing OUTSIDE of the computer space.
    Analists have some serious blinders!

  4. Actually motely fool is probably correct in their assessment that AAPL is slightly overpriced. Everyone really likes the stock at 22-25/share. At 28, I expect it to pull back to around 26 in the short term. I have to say that 40 is a very unlikely price target for AAPL in the next 18 months. There are a lot of long term questions as to Apple’s future revenue stream outside of the iPod products. Even with some of the new stuff that AAPL is working on, they may not have a product that makes money for 24-36 months out (can you say iPod.) With the desktop business not doing as well as most of us would hope and the problem with upgrading the powerbook line to faster processing thus pushing sales, AAPL is leaving a little to be desired at the current pricing levels.

  5. rj,
    my $40 target is the cash plus the longt-term cash flows coming from its music segment only (ipod+itms). Computers will always have thier niche customer base but there aren’t much profits there, agreed? ipod and itms seem to be gaining some mass market acceptance, if Apple can keep their their leadership position in music company is worth at least $40 a share.
    Also, if xserve is what it is being promoted as (lower cost better product) you will see thast widely accepted aswell but I have not included that in my forecast.
    Apple will not be a computer maker anymore, after this year they will be getting more revenues from other segments. Anyone doing an analysis of this company and only looking at their macintosh computer segment should either get some foresight or get a new job.
    Growth segments for Apple in order of importance are:
    Music (ipod+itunes)
    OSX and ilife “if they make it availible on intel”

    …and once all those other ducks are in a row, then theremay be mass acceptance of their computers (at the right price)

  6. One of the Motley Fool guys has been pooping Apple all his life, while the other guy can at least be positive about such a positive company. Lets hope Stevie can pull a quad 3ghz low power G5 out there in that overbuilt for heat case. I think it was designed for low power quads…just my opinion. If this could happen, plus a G5 PowerBook, then we just might see their number hit 40. Yes everyone, I might be dreaming, but never put it past them.

  7. the 1,

    In order for the stock price to grow much more than what it is now they need more than just the iPod. The jump in the stock price is factored in for growth over 18 months (Forward P/E for 1 year is 46+) pretty much all from expected iPod sales over that term. 46+ is still at a historical premium suggesting that the stock will pull back slightly. Apple is expected to post slight growth in the xserve line which was already built into the price.

    They are struggling to sell to the corporate markets with the xserve platform but are doing very well selling to Research (Both Commercial, Govt, and Academic.) Most feel that in order for AAPL to sell into the corporate market, a viable Linux plastform must be made available and supported by AAPL. Before the flames start, the linux need is a market demand based on need and has nothing to do with how “Good” any particular OS is. The bottom line is a that the fortune 500 has built an infrastructure on Windows and Linux and they can’t afford to train, deploy and support their staff on a new OS platform. It’s been passed around AAPL for some time and is probably still on Jobs’ desk waiting for the word. I my personal opinion, the xserve is probably the hottest SMB platform out. AAPL doesn’t have the support and services structure to fully support large Enterprise customers. Sales of the PowerMac sales are flat in terms of growth, and the iMac is posting slightly to the downside of the growth scale.

    AAPL doesn’t have a choice but to be a computer maker for the foreseeable future…it makes most of it’s money from making computers!!!! The revenue from other segments that you mention is where AAPL is trying to derive growth. They realize that the computer business is not a growth market but has become a mature market and are trying to diversify their business. So if AAPL stock were to hit 40 at the Forward P/E (1yr) they would have to come in at .86/share earnings. They just returned .37/share so they’re earnings would have to triple i.e 300%. Now let’s consider that liberal expectations for AAPL is 20% growth (Liberal because adjustments for iPod sales.)

    Growth Segments
    Music (iPod + iTunes)….. – We Hope –
    XServe – Some Growth –
    iSight – You’re kidding right –
    OSX and iLife on Intel – Read these words…Will NEVER Happen –

  8. Don’t get me wrong, I do indeed think that iSight is a leader in it’s product class. I just don’t think that the product class is one that you can count on to really impact growth and the bottom line. Unless AAPL can do something about creating products that increase growth, I have to think that the stock price is about has high as it can get.

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