It is nearly impossible to find a justification for the 175% rise in Apple’s (NASDAQ:AAPL) share price which hit an all-time high of $214.50 on December 4, up from $78 in late January 2009. Apple’s market capitalization is $193 billion, which makes it the fourth most valuable company based in America. That puts it just behind Wal-Mart (NYSE:WMT) and ahead of Johnson & Johnson (NYSE:JNJ).

In the quarter that ended in September, Apple had revenue of $9.9 billion and operating income of $2.1 billion. That means Apple trades at about five times revenue and 22 times operating income. Analysts expect Apple’s revenue to increase 18% in the quarter that just ended rising to $12 billion. EPS is expected to move from $1.78 in the final quarter of 2008 to $2.04 in Q4 2009.

Apple trades at $214 on the promise that it can continue to grow at a rate of 20% year-over-previous year and keep its operating and gross margins at least at the level where they were last year. That means that iPhone sales need to increase at and astounding rate which may be difficult due to the remarkable success of the sales of handsets running the Google (NASDAQ:GOOG) Android operating system.

Apple will also have to show some modest growth in sales of its iPod. The device has now sold over 250 million units since it was introduced in 2001. The iPod will reach some level of near-saturation which will undermine sales growth. No one can guess when that will happen.

Mac sales are still growing rapidly, but sales of netbooks, which are the primary driver of PC sales, are growing faster. Apple does not have a netbook equivalent which is likely to hurt it in the quarter ahead. The Mac may be popular, but it is expensive, more expensive than comparable PCs in most cases. Netbooks cost $300 and computer buyers are finding that price irresistable in many case.

That leaves a significant burden on the new Apple tablet PC which is expected to ship in March. The device will have to be an unprecedented success to keep Apple’s share price where it is now. If that share prices does not continue to rise, the legions of investors who believe in the company will begin to thin.

The odds that Apple can trade above $200 for most of this year are unlikely.

Douglas A. McIntyre

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