Secondly, and more importantly, it's very hazardous to rely on a stock's fundamentals to put a floor underneath its price. All stocks are risky assets, and have the potential to trade at very distressed levels. To unequivocally deny the possibility that Apple could see a short or intermediate term collapse just because it has strong fundamentals is one of the most dangerous viewpoints that anyone could entertain. While it's very unlikely that Apple will see such distressed levels anytime soon, the point here is that strong fundamentals don't make certain stock immune from torture.

    Quite often, investors are forced to unload their biggest winners in order to meet hedge fund redemption requests. Other times funds de-risk by shifting away from an equity strategy to the safe haven of less riskier assets in fixed income. Macro-economic concerns can lead to massive short-term declines in share value. There are countless factors that can conspire to bring Apple down to extreme levels. In fact, colossal mutual funds outflows have been ongoing for the past several months indicating that a major sell-off might loom on the horizon. With a major lack of market participants, any major event can completely unhinge this market.

    Research in motion (RIMM) is a fundamentally sound institution that is clearly undervalued on any widely accepted metric of valuation. That doesn't stop the inefficient market from pricing the stock at less than half of what it ought to be worth. Every stock, including Apple, is at the whim of the larger concerns of the broader market.

    So just because a stock has strong fundamentals, just because it is undervalued based on widely accepted metrics, or just because everyone has $300 to $400 price targets doesn't mean that the stock will see those levels in any short or intermediate term time frame. Instead, the only advantage available to investors is having a long-term viewpoint of the markets. Apple is probably worth $400 a share – but only in the long term. The only thing one can say with any degree of confidence is that Apple will probably see much higher levels some time within the next few years.

    Keeping these reservations in mind, I'll be offering a thorough fundamental analysis of the company. But I would be remiss if I didn't first disclose just how cautious investors should be when entertaining these very theoretical exercises. Price targets are really just a picture of what a company ought to be trading at in a theoretically rational, and efficient market sometime in the distant future. And yet, this market is rarely rational and hardly efficient in its pricing structure.

    Please don't take my skepticism of using fundamentals to forecast short-term price action as general skepticism toward Apple. That would be a gross misinterpretation of this analysis. Instead, view this analysis as a sigh of caution regarding fundamental analysis in general. Check back here later this week for my own analysis of Apple.