Steve Jobs took over the company in 1997, and Apple has generated a profit each fiscal year since 2003. Since 2003, Apple has consistently traded at an average P/E ratio of 32.17, which is consistent with today's current P/E of 33. You can tell that traders have done their homework and are strict followers of the P/E valuation.

If you're like me, you don't care too much about current P/E ratios because they are calculated from past results. The number that really matters is the forward P/E ratio because it is calculated from future estimated earnings. Well, the average forward P/E ratio for Apple since 2003 is 22.48. Any guesses what it is now?

Based on the new accounting rules soon to be put in place, and the 37 billion in cash that Apple has on its books, Apple's forward P/E is below 13. This stock has not been priced this cheaply since Steve Jobs came back to Apple in 1997.

What should Apple stock be priced at according to its historical P/E norms? Based on expected earnings per share of only $11.70 in fiscal 2010 (many think earnings per share according to the new accounting standard will end up closer to $13) the stock should be priced at $263 today and should reach $376 by Sept. 30, 2010. These prices do not reflect great years for Apple, they simply reflect the averages.

You want to know what a great year would look like on Sept. 30, 2010? Let's use the P/E ratio from just before the recession began in 2007. With the iPhone added to the Mac and iPod lines, Apple stock was soaring. Its forward P/E was 28.63 and its current P/E on Sept. 30, 2007 was 39.05. If we used those ratios in 2010, it would put Apple stock at $456 by the close of its fiscal year on Sept. 30.

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