“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.