Is The Apple Stock Price A Bubble?

I’ve been thinking about buying Apple shares for a while. Unfortunately, I didn’t have any spare cash when I wanted to buy them at about $450 and the rise since then has just been spectacular. It’s also a stock I bought at $30 (unfortunately sold it at $180) when the original iPod was released so I’ve watch it closely for a number of years.

Things seem to have changed in the last 3-6 months, and with the stock price soaring at such a rate, it got me wondering if it could be a bubble? Now before the Apple fan boys start getting upset, I am in no way saying that Apple is a bad company, or that their products are not stunning because I own nearly all of them. What does seem to be happening though is that investors are piling into the stock after seeing a stunning quarter of sales (Christmas), and the frenzy is making the price grow day on day now matter what. A Bubble? Lets look at some of the info:

Remember Nokia?

Now all the Apple Fan boys will scream that Nokia is rubbish and nowhere even close to Apple at the moment and they’re right. There was a time when Nokia were exactly like Apple in that they dominated their industry were sexy as a company, their share price was doubling every few months, and could do no wrong. Have a look at the price back in 1998 starting to soar in the exact same way as the Apple price is at the moment. You have to factor in things like the market crashes, but who is to say the market doesn’t crash and catch out all Apple investors tomorrow as well anyway.

The Apple Hype Machine

As you can see below, the share price has been on the climb for the last number of years, but things have picked up since they had their blowout Christmas quarter. Analysts are talking about $1,000 and even bad news like the death of Steve Jobs and the recent slightly faulty iPad seem to be having no bearing on the price.

Apple do, of course, have the numbers to back it up in terms of sales, but what would one bad phone or product recall do? When things are going well and a bubble is emerging nobody can ever see the downside. That is why you just hear people talking about Apple as a trillion dollar company, or other crazy growth stats. When blogs, the media and analysts get caught up in that sort of hype that is when a bubble emerges. The fact that Apple is a genius when it comes to marketing only helps fuel the fire.

Plenty Of Runway Left

If the rumor mill is to be believed, we will be looking at an iPhone 5 sometime in middle of summer or early spring, which will bolster the share price further. There is also a strong possibility that we could see the emergence of Apple TV (an actual TV rather than their current offering) in time for the Christmas shopping season. Given Apple’s tendency to redefine entire industries, that could be a huge boost to the stock price.

Although Steve Jobs passed away last summer, you get the feeling we are still seeing his products and visions given the future pipeline he would have had visibility to. What happens next year when that starts to run out is the big question investors should be asking themselves. Apple also have close to $100 billion in cash at hand, but sometimes no amount of money can replace somebody like Steve Jobs and his vision. They’ll have to spend that cash though and what they buy will define their future direction somewhat.

So Bubble Or Not?

I think it’s a mini bubble. I’ve just lived through the Irish property crash, one of the biggest crashes ever on record, and this reminds me of that. When people get dollar signs in their eyes and think that free money is available, it is a very dangerous and vicious circle where nobody ever sees the crash coming. The big difference is that Apple have sound products, people love them and that shows no sign of stopping.

I know Nokia seem dead in the water now, but their position as market leader and subsequent demise shows that things can go pear shaped very quickly. If Apple roll out a successful iPhone 5 launch and Apple TV is a hit then I wouldn’t be surprised to see the stock hit $1,000, but it’s just too risky to get in now. Sometimes what goes up must come down. $500 feels like a fair price and if it was back there in 3/4 years time, I wouldn’t be surprised.