This year has been very good for Apple (NASDAQ:AAPL). The stock jumped to a four-year high in November after a Wall Street firm doubled its price target from $52 to $100. Absent any sales update from the company since the last earnings report, this Fool wondered about the substance behind such a bullish price forecast.

That substance is, according to the same Wall Street firm, the "new" customer interest in the iPod music player. It seems some on the Street have only recently discovered what music fans already know: iPods are cool and hot all at the same time, and Apple is selling a bunch of them. Recent estimates put sales at 4 million in the December quarter and 12.9 million for fiscal 2005. Much of the spectacular rise in Apple's stock this year has been due to the huge success of the iPod.

However, that success has yet to cause a surge in sales of Apple computers. In fact, the company is selling more music players than its signature Macintosh computers, for which demand has been slowing. According to a report out by Merrill Lynch (NYSE:MER), PC unit growth will likely peak in 2004, with yearly revenue growth expected to slow from 6% to only 2% over the next two years. Compared to other computer makers, Apple had a 4% decline in unit sales worldwide from the previous quarter while its competitors gained an average 14%.

No other home computer vendor in the top 10 posted a decline in year-over-year unit growth worldwide except Apple. The one bright spot was the 74% rise in unit sales of the iBook. The leader in U.S. market share is Dell (NASDAQ:DELL) with a 33% share, followed by Hewlett-Packard (NYSE:HPQ) with 21%, and a distant third is Gateway (NYSE:GTW), at 5%. Apple ranks sixth with 3%.

So is Apple really worth more? Let's take a look and see. Apple is expected to earn about $1.44 per share in fiscal 2005 and $1.80 in 2006. Apple shares are currently trading at 36 times the 2005 estimate. By comparison, shares of Dell, another richly valued technology stock, currently trade at 27 times 2005 estimates.

Apple is expected to turn last year's $0.74 per share earnings into $1.44 this fiscal year and $1.80 the following year, which equates to 56% annual growth. These numbers, along with Apple's recent stock price, give us a Fool Ratio of 0.64, indicating an undervalued stock. And swap the current price for the $100 analyst price target and the P/E rises to 56, yielding a PEG (or Fool) ratio of 1.00 -- fair value, technically.

But those short-term numbers might be showing us Apple's good side; over the next five years, analysts expect more modest 20% annual earnings growth. That's admittedly further out and harder to predict, but 56% could be tough to sustain for long. For more-established companies, though, YPEG, a PEG-based measure using near-term predicted earnings instead of trailing earnings, is held to be a better measure than plain old PEG. Also, many folks prefer the more stable-looking five-year expected growth rate over a nearer-term rate for valuations -- a preference that might seem especially relevant in Apple's case. Blending these thoughts together into a YPEG amalgam for Apple gives us a number of 1.7, indicating overvaluation. Frankly, that's a result I'm more inclined to trust.

There is no question Apple has a strong product line with the iPod and is poised for solid growth. Yet Foolish investors need to consider the entire product line and not just one or two hot-selling items. The continued exponential growth of the wildly popular music player is questionable in my book. With competing players being introduced at a rapid pace, the iPod's market share could fall, and with it Apple's stock price.

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Fool contributor Kelvin Taylordoes try to eat an apple a day, but does not own shares of any of the companies mentioned.