Apple's $430 Valuation: Upside, Downside Scenarios

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- Apple(AAPL) has generated a lot of news over the past few weeks including stories about iPhone 5's release, the rise of its main competitor Android, ongoing patent lawsuits with major competitors, and a potential iPhone targeted toward emerging markets. The shares have reached a high of around $370 after trading as low as $315 in mid-June.

The iPhone accounts for more than 50% of our $430 price estimate for Apple stock, and so updates about the iPhone can move the stock quickly. The smartphone industry remains highly competitive as Google(GOOG) Android, Research In Motion(RIMM) BlackBerry and Microsoft(MSFT) Windows Phone 7 are all vying for smart phone market share with their operating systems.

Our price estimate for Apple stock stands at around 20% above market price, and below we look at four key drivers that impact the share price.

Summary of key drivers:

iPhone market share: iPhone's global mobile phone market share has steadily increased and stands at around 3% as of 2010.

iPhone pricing: iPhone pricing has remained steady for the last two years and stands at around $610 as of 2010.

iPhone gross margins: iPhone margins declined in 2010 to around 51% as iPhone 4 incorporated new features which pushed up the input cost for Apple.

iPad unit sales: iPad was launched in April 2010 and sold around 15 million iPads in 2010.

35% upside to Trefis price estimate -- Apple's stock value of $584

Slower decline in iPhone pricing (+10%)

We currently forecast average iPhone prices to decline to around $400 by the end of Trefis forecast period as increasing competition could force Apple to cut prices in future.

However, the iPhone's pricing has remained resilient in the past few quarters at around $610. Moreover, continued demand for new versions of iPhone have supported average prices while it has only reduced prices on older versions. Traditionally, Apple has targeted the premium customers and has not aimed for the mass market presence unlike its competitors.

These factors could mean that iPhone pricing could decline at a slower rate than what we forecast. There could be an upside of 10% to our estimate for Apple stock if iPhone pricing declines slowly to reach $500 by the end of Trefis forecast period.

Faster increase in iPhone market share (+10%)