With shares of Apple (NASDAQ:AAPL) trading around $560, is AAPL an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Apple designs, manufactures, and markets mobile communication and media devices, personal computers, portable digital music players, and a variety of related software, services, peripherals, networking solutions, third-party digital content, and applications. The company’s products and services include the iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and further accessory, service, and support offerings. Apple also delivers digital content and applications through its iTunes, App, iBook, and Mac App stores.
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Since a federal appeals court weighed in on Apple’s smartphone war with Samsung (SSNLF.PK) last month, the iPhone-maker’s quest to implement a sales ban against its rival’s devices has gained a new lease on life. Smartphones have created a nearly $300 billion industry, and the battle to control market share is no longer limited to winning over customers. Equally important is protecting the ideas behind the innovations that propel the multi-billion industry forward.
T = Technicals on the Stock Chart Are Strong
Apple stock has struggled to make significant progress in the last several quarters. The stock is currently pulling back and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Apple is trading above its rising key averages, which signal neutral to bullish price action in the near-term.
(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Apple options may help determine if investors are bullish, neutral, or bearish.
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Implied Volatility (IV)
30-Day IV Percentile
90-Day IV Percentile
Apple options
27.87%
86%
83%
What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
Put IV Skew
Call IV Skew
January Options
Flat
Average
February Options
Flat
Average
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Miixed Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Apple’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Apple look like and more importantly, how did the markets like these numbers?
2013 Q3
2013 Q2
2013 Q1
2012 Q4
Earnings Growth (Y-O-Y)
-4.73%
-19.85%
-17.97%
-0.43%
Revenue Growth (Y-O-Y)
4.19%
0.86%
11.27%
17.65%
Earnings Reaction
-2.49%
5.13%
-0.16%
-12.35%
Apple has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with Apple’s recent earnings announcements.
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P = Average Relative Performance Versus Peers and Sector
How has Apple stock done relative to its peers, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), BlackBerry (NASDAQ:BBRY), and sector?
Apple
Google
Microsoft
BlackBerry
Sector
Year-to-Date Return
9.25%
57.19%
38.61%
-37.70%
4.38%
Apple has been an average performer, year-to-date.
Conclusion
Apple strives to provide innovative products and services that consumers and companies love to own. Since a federal appeals court weighed in on Apple’s smartphone war with Samsung last month, the iPhone-maker’s quest to implement a sales ban against its rival’s devices has gained a new lease on life. The stock hasn’t made significant progress in the last several years, but is currently pulling back. Over the last four quarters, earnings have been decreasing while revenues have been rising, which has left investors pleased. Relative to its peers and sector, Apple has been an average year-to-date performer. Look for Apple to OUTPERFORM.
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