Apple’s Stock Price: Too High, Or Too Low?

Apple’s stock, AAPL, was the darling of Wall Street in 2005, soaring to record heights, on record sales, record profits, record product units.

What have you done for me lately? Is Apple’s price too high, or still a bargain? Where are the new products to push the stock to record levels?

To be fair, many investors made a lot of money on AAPL in 2005, indeed all the way through Macworld 2006 when Apple stock peaked at over $86 and a valuation that topped Dell Computer and flirted with $80-billion.

That was then and this is now. What goes up, must come down. And down AAPL came as the switch to Intel-based Macs stalled sales, and the after-holiday doldrums punished unit sales of the hot-selling iPods.

Today’s Apple stock remains mired in the mid-$60s, with a market cap of a mere $55-billion or so, a remarkable drop from dizzying heights.

2006 will prove to be a year of transition for Apple, yet remarkably, some analysts continue to predict AAPL will top $100 a share. So, is Apple’s current stock price too high, or too low?

Is this a buying opportunity, or time to get out while you still have profit (assumes you bought AAPL anytime before fall of 2006)?

Citigroup analyst Richard Gardner raised AAPL to a buy from a hold. What does he know that the rest of us don’t? Does Apple have yet another shockingly great quarter of earnings and revenue to reveal?

Does Apple have a stack of new and exciting products to reveal near the company’s 30th anniversary date of April 1st?

What could Apple introduce that would catch the stock on fire again?

Consensus says Apple will roll out a new iPod with video, and introduce an online full-length movie service, in addition to moving the iBook line to Intel chips.

Is that sufficient to light a fire under AAPL, or have we seen the last of Apple sitting on the highest peaks of stock prices?

Piper Jaffray analyst Gene Munster seems to think there’s more to Apple in 2006 than meets the eye. Munster maintains an “outperform” rating and a sky high $103 price target on AAPL stock.

$103 per share? That’s over a 60-percent increase from the current level? Why the bull stance?

Munster says iPod demand will accelerate in mid-calendar 2006 based on seasonality and new iPod models. I could predict that much. What else?

The iPhone. Munster also reports there’s a 75-percent chance that Apple will introduce an iPhone in the next 12 months. That sounds like something you’d hear from a Las Vegas analyst.

To be fair, the Gods must be smiling on Steve Jobs yet again, flush with victory money from selling out Pixar to Disney, and smiting Bill Gates and Microsoft yet again.

The Windows maker announced that the latest version of Windows, now due in late fall of 2006, will not ship with EFI, the United Extensible Firmware Interface used by Apple’s Intel-based Macs.

Instead, Windows will continue to run the ancient BIOS to start up PCs, which means running Windows Vista on a Mac may not be so easy. Worse, Gates and Company, without EFI support on the first version of Vista run the risk of looking (again) technologically behind Apple.

Writing for eWeek, David Morgenstern says Microsoft’s lack of EFI support in Vista is not a technology issue. It’s a business issue. PC box makers don’t want new parts, new technology, new problems or new costs eating into already slim margins.

The promise of EFI is more security, more stability, and faster boot times. Apple’s Intel-based Macs often boot in half the time of previous models.

Even better for Apple, Microsoft announced that Windows Vista will have six different versions which further clouds the marketplace. Mac OS X has two versions (including OS X Server).

Can Microsoft’s stumbles cause Wall Street to think the current AAPL price is undervalued?

By traditional measurements (price to earnings ratio), AAPL could be considered overvalued.

So, why the optimism? Are some Wall Street stock analysts trumpeting AAPL’s future position simply to keep the stock from sliding lower, or do they know something the rest of us don’t know?

What does Apple have in the product pipeline that will excite the masses? It’s not lower prices based on Intel chips in Macs, that’s for sure.

New iPods are to be expected, and nearly everyone who pays attention says the same thing—Apple’s dominance of online music sales and TV show sales is likely to continue for a few years, regardless of the competition from Microsoft and the evil axis of beige box makers.

Online sales of feature-length movies is also expected this year. Apple has a legal issue or two to resolve. Oh, and there’s getting all the content providers to provide sufficient content so as to avoid the Vongo disaster (not enough selection).

Apple’s 30th anniversary is April 1st, 2006; just a couple of weeks away. It’s also a Saturday, so it’s unlikely that we’ll see new product announcements on that date, more likely the following Tuesday, April 4th.

But what? What products could Apple introduce this year that will move an already overextended stock price up another 60-percent?

Whatever it (or they) may be, the products should appeal much more to the masses; far more than an updated line of Macs. That’s iPod territory, because the masses of Windows PC users buy most of the iPods.

Let the speculation begin. The only way for Apple to move the stock from the doldrums of the mid-$60s into the stratosphere of near $100 a share is with a line of products for the masses.

2006 may become the year that Apple Computer becomes the Apple iPod Company. I look for an iPhone (with full iPod capability, and no 100 song limit), and an iPad; an iPod with widescreen, and Mac OS X inside.

What about you? What’s coming that could make Apple’s stock a darling again, and worth buying now?