Ripe Rule Breaker?

Before you read on, let me get this on the record: I love Apple Computer (Nasdaq: AAPL  ) . I love the company, and I love its products. In fact, there's one PC in my house and three Macs, including the G4 PowerBook I'm using to write this story. (The PC, by the way, sits idle in a cabinet.)

I'm hardly the only one who loves Apple's products, of course. The iPod has become a cult icon in the same way the flat-screen iMac was when it first burst onto the scene. That's why I've taken a shining to the stock. Indeed, just last month fellow Fool Seth Jayson and I dueled over Apple's prospects, with me arguing that the firm is a Rule Breaker. In February, I wrote that the stock was a strong value pick for the year ahead.

I still believe Apple is a Rule Breaker, and I'm thrilled that my prediction from February was correct (though I wish I had profited from it). But Apple's stock has gone too far, too fast, and now it appears poised for an awfully messy fall.

Yesterday the stock was up more than 6% on essentially nothing, and it is up 72% since I defended the iEmpire in October!

Sure, three analysts upped their price targets and had nice things to say. One even propagated a rumor that Apple would soon release a new server for managing digital entertainment, a la Microsoft's (Nasdaq: MSFT  ) Windows Media Center. Yeah, OK, that's all well and good, but is any of this more than hot air? Probably not.

The worst part is that the stock now trades at a forward P/E of more than 40, well above Street growth estimates for 2005 and beyond. Yeah, I know, it's not like Apple hasn't defied logic before. That, after all, is what makes it a Rule Breaker. But even Motley Fool Rule Breakers chief analyst and Fool co-founder David Gardner has sold stocks he's seen go up too fast without proper justification.

Take Netflix (Nasdaq: NFLX  ) , for example, a company David recommended Motley Fool Stock Advisor subscribers sell a year ago after racking up huge gains. Why? Too much, too soon. And Netflix ultimately did come back to earth. (And, as he said he might at the time of the sell recommendation, David has recently re-recommended Netflix to Stock Advisor subscribers at its new lower price.)

Fools, sometimes a stock is so good it's bad. So maybe it's simply time to call Apple what it is: ripe and ready for picking. Wait too long, and this juicy stock will surely turn rotten.

For related Foolishness:

Apple would have been a contender for top pick for Stocks 2004 if it had been selected. But our analysts still walloped the market without it. What are we up to for next year? Find out by getting your copy ofStocks 2005today, or sign up for any of our investing newsletters and get the report free.

Fool contributor Tim Beyers has no position in any of the companies mentioned, but he sure wishes he had taken a bite of Apple in February. You can view Tim's Fool profile and other stock holdings here.

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