Apple (Nasdaq: AAPL ) is in a good place right now. The market's eating up iPhone 5 smartphones this weekend, and the stock broke through $700 for the first time this past week. For perspective, Apple shares closed at $406.68 on the eve of the iPhone 4S's debut 11 months ago. The stock closed 72% higher on the eve of the iPhone 5's rollout.
Concerns that Tim Cook wouldn't be able to live up to Steve Jobs have, for now at least, been silenced.
It's probably not realistic to expect another 72% pop in Apple's stock between now and the time next year's new iPhone comes out. That would make Apple a $1.1 trillion company. Yes, the tech giant is the odds-on favorite to become this country's first $1 trillion company, but all in the coming fiscal year?
Either way, sooner or later, there will come a time to sell Apple. Let's go over the five things to watch that would signal that it may finally be too late to buy into the class act of Cupertino.
1. Sell when analysts start lowering their price targets
Wall Street's generally infatuated with Apple, making it the most valuable company on the planet. How did this happen? It's not as if Apple has been a barnburner over the past year. In rare form, Apple has actually come up short on the bottom line in two of the past four quarters.
However, when Apple is good, it's really good, and analysts know the safe bet is to raise their price targets.
Deutsche Bank became just the latest analyst firm to juice up its expectations, having upped its price target on Apple from $775 to $850 on Friday. The move is hardly a surprise, with the iPhone 5 setting new sales records.
The coast is clear on this one, but be careful when Wall Street begins leading clients back down.
2. Sell when the stock price outruns the fundamentals
Apple is still cheap by traditional valuation standards. Despite a decade of blowout capital appreciation, Apple is fetching just 13 times earnings for the fiscal year that begins next month.
However, Apple was cheaper a year ago. The stock has soared better than 70% over the past year, but revenue and earnings have climbed only 44% and 60% higher, respectively. Even the bullish pros see Apple's heady growth slowing considerably in the year ahead, aiming for 20% profit growth on a 24% revenue increase for fiscal 2013.
Yes, analysts have historically bumped their outlooks higher as fiscal years play out, but make sure Apple's stock doesn't get too far ahead of its growth rate. There is certainly room for earnings multiple expansion, and that's why the stock is still cheap today. However, it's all about justifying gains in the future.
3. Sell when Apple's market share starts to suffer
Google (Nasdaq: GOOG ) Android devices continue to be the smartphone platform of choice, but Apple has still gained market share over the past year.
That's important. The iPhone is Apple's biggest product these days, and the last thing investors want to see is consumers who opt for cheaper smartphones.
Think that can't happen? Research In Motion's (Nasdaq: RIMM ) BlackBerry seemed invincible, and Palm before that. These days, things are so bleak for RIM that analysts are betting on a 40% plunge in quarterly revenue when it reports on Wednesday.
Microsoft (Nasdaq: MSFT ) , meanwhile, is throwing billions at getting Windows Phone going. Nokia (NYSE: NOK ) has been Mr. Softy's workhorse, but HTC turned heads on Wednesday by introducing a pair of Windows Phone smartphones that it will roll out in November. If Microsoft can sway most of the PC companies that have carved a cozy living off Windows as a desktop or laptop operating system to back the software giant's smartphone push, things may get interesting.
Apple doesn't have anything to worry about there -- for now. The iPhone 5 had more than twice as many preorders in its first day of availability than last year's iPhone 4S. Apple will be putting out a press release shortly, probably gushing about record retail sales over the weekend.
However, investors need to keep all of the potential negative catalysts in mind. Apple is cheap -- and a spectacular buy at even today's lofty prices -- for a company that's growing at a healthy clip. If that ever starts to change, it could be a long way down.
Continue enjoying the ride, but never lose sight of where the exits are located.