If something is too good to be believed, it probably should not be believed. If something can't go on forever, it won't. And yet, there's Apple (Nasdaq:AAPL). Apple continues to log financial results that are just absurd as the company has clearly found a golden mean of product desirability and profitability. The question is whether or not Apple has enough rabbits left in the hat to please investors and analysts.
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A Blowout Third Quarter
It is not all that uncommon to see billion-dollar mining companies report huge growth in a cyclical upswing, but very, very few companies go from about $16 billion in sales one quarter to nearly $29 billion a year later. But that is what Apple did in the fiscal third quarter, as revenue rose 82% from last year and 16% from the second quarter.

Growth continues to be driven by the iPhone, as sales here rose 142% from last year and 8% from the second quarter. IPad sales momentum was also exceptionally strong, as sales more than doubled sequentially, but this business is still half the size of the iPhone.

Profitability was very solid this quarter as well. Gross margin improved over 260 basis points from last year, and operating income more than doubled. Apple finished the quarter with more than $76 billion in cash and investments on the balance sheet as year-over-year cash flows from operations increased by 131%.

Sucking the Air out of the Room|
Not counting the iPod (which is basically in managed decline now), PCs were the laggard for the quarter, with "only" 16% year-on-year growth. That is that other PC-makers like Dell (Nasdaq:DELL) and Hewlett-Packard (NYSE:HPQ) could only dream of at this point.

Likewise, Apple continues to basically define and dominate the market for smartphones and tablets. Samsung is a valid and viable competitor, but no other company seems to really be establishing a firm market for itself. Research In Motion (Nasdaq:RIMM) looks lost, Nokia (NYSE:NOK) seems desperate, and Motorola Mobility (NYSE:MMI) seems to lack consistency.

It's even worse in tablets. Google (Nasdaq:GOOG) would love to be a viable OS competitor, but there's hardly any real momentum in tablets outside of Apple.

What's Next?
It's not easy to get much attention talking up Apple any more, so these days a lot of the discussion revolves around what could go wrong. Does Apple have a workable succession plan in place? Can Apple find another new market to exploit that is worth as much as phones or tablets? Can the company find a worthwhile use for its cash?

Those are all valid questions. After all, companies like LG and Philips (NYSE:PHG) have struggled with their TV operations, so is it really worthwhile for Apple to get into this market? Here too, though, the answer likely lies more in how the company can redefine the experience as opposed to the hardware - an Apple TV that offers the chance to buy TV programs or movies could be that long-awaited alternative to cable companies and their stubborn refusal to offer a la carte services.

The Bottom Line
So what's Apple worth? If Apple can achieve roughly 12% annual revenue growth for the next four years, the company will end 2015 with over $176 billion in annual revenue - a breath-taking number to be sure. Assuming a declining ratio of free cash flow conversion, Apple could end that same year with nearly $39 billion in free cash flow. Assuming 6% cash flow growth beyond that, a market-matching discount rate, and adding in the cash on the balance sheet suggests a target upwards of $550.

It's a difficult reality check. That $176 billion number for 2015 is a whopper of an expectation, but 12% growth just doesn't seem like a huge hurdle. Plenty of people will suggest swapping out of Apple into a less-loved tech stock alternative, but it's difficult to run away from that sort of growth and market penetration. (Over time, disciplined risk-seeking behavior can produce above-average returns. See How To Construct A High-Risk Portfolio.)

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