First and foremost, I'm long in Apple. As with many other investors, I see Apple's current and forward valuation as a strong and sustainable component of the stock's current, and future, valuation. I do believe that Apple will become a $1000 stock, but not in this year.
In the past weeks, we have all witnessed the barrage of analysts upgrading Apple's stock prices to figures as high as $1500. Though these valuations may be sound and perfectly valid, they've created an astronomically sensitive hype around the stock.
I just recently saw a poll taken of current Apple investors in which 60% of them believed that Apple's stock will hit $1000 by this year alone. This is very disconcerting because all of the $1000 valuations state that these are the 2014/2015 projected figures, not the current year projected figures.
The result of all these stock price valuations has created a vastly disillusioned belief of how much the stock is truly worth. If the poll is even a slight indicator of how current stockholders perceive Apple's future valuation, then we're in trouble. The fact that 60% of the polled participants believe that Apple's shares will appreciate to $1000 this year means that the current year underlying valuation of the company's earnings is 66.67 EPS, assuming a conservative P/E ratio of 15. This is far beyond the actual projected EPS by analysts of about 44.
What does this mean? It means that unless Apple crushes, absolutely crushes, every future earnings estimate, then its stock may experience a very steep drop resulting from the selloff of the currently fanatical investors.
I truly believe that a rational investor will look at Apple's current stock appreciation and worry. Yes, the company's fundamentals completely support the current stock price, but that is beside the point I'm alluding to. The point is that this is a mega-cap company that has experienced a 56% appreciation in a matter of just 3 months. To put this in perspective, the company appreciated by about $215 Billion, nearly the entire value of Microsoft.
I'm not saying to sell your shares. I'm just saying be wary of a possible very steep drop in Apple's stock prices resulting from a panicked frenzy of inexperienced investors. This will present a very strong buying opportunity to keen investors.
Disclosure: I am long AAPL.