Summary: Apple (AAPL) shares have risen over 40% since its January iPhone revelation. At 5x sales and 34x 2007 earnings, the market has already priced in a lot of growth. "There's been such hysteria around the phone that it led to what I would regard as a premature increase in the share price," says Wolf Bytes author Charlie Wolf. Even at CEO Steve Jobs' stated goal of 10 million units, revenue of $500-600 million would only add about 2% to Apple's forecasted $21.6 billion.* And if serious hardware problems or service glitches arise, shares ($122) could drop below $100. One analyst notes that letdowns have followed previous launches, and another says he's cutting his Apple stake with the goal of rebuilding it once the post-launch dust settles. Barron's suggests taking some short-term profits and getting back in on a dip -- perhaps spurred by the fall arrival of Mac OS Leopard, with its ability to boot into Windows. Other possibilities include selling out-of-the-money calls against shares to capitalize on Apple's inflated volatility, buying relatively inexpensive puts to profit on a dip, or initiating call spreads -- selling 135s and buying 125s.
[*SA Editor: My calculator says Barron's is off by a factor of 10.]
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Earnings call transcript: Apple F2Q07