I'm an Apple (NASDAQ:AAPL) fan. I'm a Mac user. And I agree with much of what Fool contributor Georges Yared wrote last week in his "3 Reasons to Buy Apple Now." But this ...

Nor did I tell you that the several portfolio managers I regularly talk to from a previous life are still buying the stock for the long term. Five of them in particular have $200-$225 price targets for calendar 2008.

... Reminds me of one of my all-time favorite movie lines, delivered by Jack Nicholson in As Good as It Gets: "Sell crazy someplace else, we're all stocked up here."

Here's why:


Market Cap

Exxon Mobil (NYSE:XOM)

$484.1 billion

General Electric (NYSE:GE)

$392.2 billion

Microsoft (NASDAQ:MSFT)

$291.7 billion

Citigroup (NYSE:C)

$267.0 billion

Royal Dutch Shell

$259.7 billion


$248.3 billion


$247.2 billion


$241.9 billion

Indus. and Comm. Bank of China

$225.6 billion

BP plc

$224.6 billion

Bank of America

$222.2 billion

HSBC Holdings

$213.7 billion

Wal-Mart (NYSE:WMT)

$202.7 billion

Source: Capital IQ, a division of Standard & Poor's

Of the tens of thousands of publicly traded companies around the globe, only these 13 are worth more than $200 billion in market value. Lower the threshold to $175 billion and the list grows to just 24.

Why should you care? Because, following Georges' assumptions, Apple will become No. 25 by the end of 2008.

Come see me when you've lost some weight, Steve
Let's do the math, beginning with shares outstanding.

Apple has a history of modest to heavy dilution. Since 2002, the Mac maker's share count has risen by an average of 3.6% a year. But the pace has slowed recently, as it increased its share count by just 2% in fiscal 2006.

If dilution remains steady at 2%, Apple will end fiscal 2008 with 894 million shares outstanding. Multiplying that by $200 equals a projected market cap of $178.8 billion. Multiplying by $225 equals $201.1 billion in market value.

But Apple, an outrageous grower, should be able to achieve that, right? Right?!? Don't be too sure.

Each dollar of Apple's revenue is worth $4.95 in market cap to today's investors. We know this because if we divide Apple's current market cap ($107 billion) by its revenue from the last 12 months ($21.59 billion), we get $4.95.

Now, to reach a market value of $178.8 billion, the minimum Georges suggests, Apple will either have to:

  1. Boost revenue by 75% over the next two fiscal years,
  2. Earn a still-higher premium for each dollar of revenue, or
  3. Some combination of both.

The third outcome is most likely, right? I'd say. But that doesn't mean Apple investors have it easy. Once again, let's do the math.

Street estimates call for $28.98 billion in fiscal 2008 revenue. To earn a market cap of $178.8 billion from that total, Apple would have to convince investors to pay $6.17 per dollar of revenue, up 24% from today's multiple.

And as a $200 billion business? Investors would be paying $6.90 per dollar of revenue, up 39% from today's multiple.

What about expanding Mac market share?
For those justifying a purchase of Apple on the theory that the Mac will keep gaining market share, remember that less than 50% of its revenue comes from desktop and portable Macs.

What's more, by my math, each 1% gain in market share is worth just $1.48 billion sales ... so not that much when you factor in the Street's growth assumptions.

Mix in the iPod, though, and the picture improves dramatically. The $7.68 billion in 2006 iPod revenue was up 69% over the year prior. Growth doesn't appear to be slowing much, if at all.

There's also the iPhone. If CEO Steve Jobs is right, and Apple sells 10 million of these handsets by the end of 2008, then the iEmpire would realize between $5 and $6 billion in additional revenue.

Yet, even with all that in its arsenal, Apple's revenue growth rate (and projected growth rate) is slipping:

Fiscal Year

Total Revenue

Growth From Year Prior

Proj. 2008

$28.98 billion


Proj. 2007

$23.68 billion



$19.32 billion



$13.93 billion


Sources: Capital IQ, Yahoo! Finance

Is that really the stuff of a rising valuation?

Know the rules before you break them
I'll understand if it sounds crazy for a contributor to the Motley Fool Rule Breakers team to be talking down Apple's stock because the math doesn't work. Fair enough.

But just because we'll buy stocks that look expensive doesn't mean we ignore the numbers altogether. To the contrary. We're very careful about which rules we break. And we always have a good reason when doing so.

I can't see a good reason to break the rules with Apple. Neither can David Gardner, who leads our rebel band and who recently shorted Apple in our Motley Fool CAPS investor-intelligence database. Quoting from his pitch:

When companies reach a $100 billion market cap as Apple recently has, for new money as a stock market investor, they die for me. They blink out. Disappear. It's not that they'll be bad stocks [from] now on. It's just that for them to double from $100 billion, they have to stack on $100 BILLION MORE into their market caps. And some will do it. But it doesn't happen so fast, and it's not a guarantee at all. It's far easier for me to locate $2 billion companies that, to double, just need to reach $4 billion market caps.

Indeed. Good luck, Apple investors.

How great is growth? Seven of the dozens of stocks in the market-beating Motley Fool Rule Breakers portfolio have more than doubled. Care to find out who they are? Click here to get 30 days of free access to the service.

Fool contributor Tim Beyers, who is ranked 6,527 out of more than 30,000 rated investors in CAPS, wrote this article on his MacBook Pro, but didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. Microsoft and Wal-Mart are Inside Value selections. Bank of America is an Income Investor pick. The Motley Fool's disclosure policy eats an apple a day to keep the Street away.