With shares of Apple Inc. (NASDAQ:AAPL) trading at around $450.50, 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:
C = Catalyst for the Stock’s Movement
Apple’s era of runaway growth is over. That’s a near certainty. On the other hand, investors seem to be getting a little carried away when it comes to selling shares. If we’re looking at traditional metrics, then Apple is still an all-star. However, psychology plays a bigger role than anything else on Wall Street, and the expectations aren’t being met. A big part of this is that most tech investors are seeking momentum. Looking ahead, Apple will act more like a blue chip stock than an incredible growth stock. Yesterday’s news has at least provided an opportunity for new, long-term investors to get in on Apple.
As far as Q1 goes, revenue didn’t meet expectations. Revenue came in at $54.5 billion versus an expectation of $55 billion. However, compared to last year, this was an 18 percent increase. EPS came in at $13.81, which beat the expectation of $13.48. Last year’s Q1 EPS was $13.87. Perhaps the most important news was that the iPhone “only” sold close to 48 million units, which happened to be a record. The problem is that expectations for more than 48 million units sold. This is important news because the iPhone accounts for 56 percent of Apple’s total revenue.
Guidance was another issue. The revenue forecast for next quarter is $41 billion to $43 billion, which was below the expectation of $45.6 billion. There was no earnings forecast. Now this is serious cause for concern because it’s not a normal practice for Apple to hold back its forecasts, and more importantly, investors hate uncertainty.
Margins decreased slightly, but they’re still very high. The operating margin is still around 30 percent, which is much higher than average. ROE is even more impressive. In addition to that, the company generated a lot of cash and is likely to increase the dividend in the near future.
Apple is attempting to sell more devices at lower prices, but this is an innovation company. Without innovation, investors won’t be excited and the stock price won’t climb. Without Steve Jobs, the innovation aspect of the business doesn’t have as much potential. On the other hand, Apple has so much cash that there’s an excellent chance they will do something with it. This could be a large acquisition that would excite investors.
Let’s take a look at some important numbers for Apple…