There have been a lot of leaks lately pertaining to the Apple (NASDAQ:AAPL) iPhone 6. At this point, we've seen mockup after mockup, heard rumor after rumor, and even still, investors are hungry for more. While some of these reports and leaks are more accurate than others, there's one thing that you absolutely need to know about it before its launch in the fall.

Expectations are really high
How many people actually think that the iPhone 6 is going to be a flop? Anybody? That's what I thought. The iPhone 6 is expected to be a gigantic hit. With what is likely to be a super-thin design, a larger screen than the iPhone 5s, and more processing power than anybody has ever stuck into a smartphone, this thing should just plain rock!

The problem, unfortunately, is that the above argument is the furthest thing from novel. The stock is now trading on the expectations that Apple is going to have more-or-less a blockbuster iPhone 6 launch. Sure, the stock trades for a reasonably cheap 15.63 times trailing 12 month earnings, but keep in mind that at these levels investors are factoring in the following:

  • Double trouble: The iPhone 6 is expected to launch in two flavors, 4.7-inch and 5.5-inch, to greatly expand its total addressable market.
  • Swimming against the ASP tide: Apple may experience average selling price increases, particularly if it can price the alleged 5.5-inch model meaningfully higher (say $100) than the 4.7-inch model.
  • Share gains: In many regions, particularly in Asia, large phones are extremely popular. Further, according to a Kantar Worldpanel ComTech report, of the customers in the U.S. that did switch from Apple's iPhone to a Samsung Galaxy S5, a highly cited reason was the screen size. Presumably the iPhone 6 gets some of that "easy" share back.

Let's go a step further and take a look at analyst consensus to get a feel for what the "market" is expecting in more quantifiable terms.

Digging into consensus
According to Yahoo! Finance, consensus for the current year (ends in Sept. 2014) is for $181.58 billion in revenue (up 6.2% from the prior period) and $6.31 per share (up from $5.68 in the prior year). Going a step further, the sell-side is looking for $194.50 billion (implying that revenue growth accelerates to 7.10%) on the top line and $6.89 per share on the bottom line.

Though price-to-earnings is just one of many valuation metrics, the shares don't look all that expensive at 14.81 times this fiscal year's earnings and 13.57 times fiscal 2015's earnings. Now, it's unclear if these numbers are adjusted for expected buyback activity or if the buyback could drive potential upside, but either way Apple looks cheap.

More importantly, though, is that these mid-single digit growth estimates don't seem to be wildly optimistic, though you can see that the expectation of share gain is built into the 2015 estimates as year over year growth is expected to accelerate.

Foolish bottom line
If there's anything you should take away from this, it's that investors expect some pretty great things from iPhone 6. The good news is that if Apple can rip the cover off of the ball and push right past current sell-side estimates, the stock could power higher still. The bad news, though, is that if Apple even so much as slightly misses these estimates, the stock could be irrationally vulnerable and this could be a welcome buying opportunity for those who still believe in the long-term story.