I know I'm stepping into the lion's den by looking at Apple (Nasdaq: AAPL). It's a stock that tends to get people excited almost regardless of what you say about it.

But the stock has been an absolute monster over the past decade, it's a favorite of our Motley Fool Stock Advisor newsletter service, and it's a stock that The Motley Fool owns after my fellow Fool Eric Bleeker gave it the nod during our "11 O'Clock Stock" series last year. So if nothing else, it's a tough stock to ignore.

Here's the real question, though: Are there still significant gains possible for investors jumping in today? Let's take a closer look.

Earnings expectations
As I outlined in a previous article, a good way to get a baseline for growth expectations is to check on what Wall Street analysts expect and how fast the company has actually grown in the past.

 

Annual Growth Rate

Analysts' estimates 21.8%
10-year historical 52.4%
5-year historical 60.4%
3-year historical 63%
Last 12 months 77.9%

Source: Capital IQ, a division of Standard & Poor's. Historical growth based on earnings per share.

There are no two ways about it -- those historical numbers show absolutely unbelievable growth. That historical growth also includes the drag from the company's share growth as its share count grew 32% over the past decade. And though the analysts' numbers point to a growth slowdown, 22% annual growth for a company Apple's size is still very impressive.

Now comes the tougher part: How fast do we actually believe Apple can grow? This is a really tricky question, particularly when we consider the short history of MP3 players, smartphones, and tablet computers. Yet when I consider the incredible traction and momentum of those product categories, not to mention the dominance of the Apple brand in those categories, I have trouble dismissing the analysts' growth estimates as optimistically high. In fact, I'm inclined to think that Apple could actually exceed that target.

For my baseline growth expectation, I basically agreed with analysts and used a 20% annual rate. For my upside case, I assumed that Apple cleared the 20% hurdle and managed 25% annual growth.

Thinking about a downside case, I wanted to make sure I was prepared for fairly disappointing results. In the world of tech and consumer electronics, the winds of change can cause abrupt shifts -- consider the experience of Sony or Research In Motion (Nasdaq: RIMM). With that in mind, I cranked annual growth all the way down to 7% for the downside case.

Pinning down valuation
Valuations are a moving target that can be tough to predict, but, as with growth above, using a range of values can give us a view of our potential returns without requiring a Miss Cleo-type prescience.

In creating our range, a good place to start is where the stock is trading right now and what its historical trading range has been. Right now, Apple's stock trades at just less than 17 times trailing earnings per share and a bit more than 13 forward earnings per share. Over the past five years, the stock's trading range has brought its trailing earnings multiple as high as 55 and as low as 15.

For broader context, we can also look at how similar companies trade.

Company

Industry

Trailing P/E

Estimated Growth

Microsoft Software 10.2 12%
Hewlett-Packard (NYSE: HPQ) Diversified technology hardware 10.2 9.2%
Dell (Nasdaq: DELL) Computers 11.4 6%
Research In Motion Cell phones 7.4 15.6%
Nokia (NYSE: NOK) Cell phones and other communication equipment 12.6 3.2%
Google Internet services 19.7 17.6%

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

Most investors will recognize this group as a bunch of Apple's competitors. And, by the same token, most investors will understand that Apple should garner a higher multiple than most of these companies, because it's been roundly kicking their butts and growing much faster. That is, with the notable exception of Google. And, interestingly, Google actually trades at a higher multiple than Apple with lower expected growth.

Taking all of this together, I think we're relatively safe using a multiple slightly lower than current -- say, 16 -- for our base case. For the upside case, I could easily see investors paying 20 times earnings for Apple's stock. On the downside, I plugged in 11 -- right in the same neighborhood of the non-Googles above.

Dividends and share count
Our final stop is to consider how much we'll get paid through dividends and whether changes in share count will affect our bottom line.

My main concern with share count is that I'll end up with a company that has a history of significant dilution. That's far from ideal, because big share issuances cut the portion of the profits that each share receives. We've already touched on this above, and while dilution is a concern with Apple, I'm assuming that it's baked into the earnings-growth estimates.

On the dividend front, we don't have any work to do, because Apple doesn't pay a dividend and has roundly rejected the idea of initiating one.

The verdict, please!
The end result of all of this is the returns we can expect under the various scenarios. Here's what my three scenarios would look like.

Scenario

Annual Earnings-Per-Share Growth

Earnings Multiple

Annual Dividend Growth

Expected Annual Returns

Upside 25% 20 0% 29.8%
Mid-case 20% 16 0% 19.2%
Downside 7% 11 0% (1.4%)

Source: author's calculations.

Let's now go back to that question that we started with: Can Apple's stock double? The answer seems to be a pretty clear "Yes!" Under the mid-case scenario, the stock would more than double in five years, while with the upside case the stock would more than triple.

However, as the downside case suggests, I think there could be a pretty wide band of outcomes for Apple. An abrupt change in consumer taste or a killer new product suite from a competitor could lead to a very disappointing outcome. What does this mean? It means that Apple is a higher-risk investment than, say, Procter & Gamble and not ideal for investors who like high levels of reliability and predictability (not to mention dividends). Or, to put it another way, I wouldn't consider Apple a Buffett stock.

Of course, the future is an ever-changing picture, so you need to keep on top of what's going on at Apple to see which set of numbers the company and stock are able to live up to. And you can do just that by adding Apple to your Foolish watchlist.

Google and Microsoft are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers choice. Apple is a Motley Fool Stock Advisor selection. Procter & Gamble is a Motley Fool Income Investor selection. Motley Fool Options has recommended a bull call spread position on Apple and a diagonal call position on Microsoft. The Fool owns shares of Apple, Google, and Microsoft. Alpha Newsletter Account, LLC, owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer owns shares of Microsoft but has no financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.