Is the Post-Earnings Apple Looking Much Sweeter?

Source: Thinkstock

Source: Thinkstock

With shares of Apple (NASDAQ:AAPL) trading around $567, 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 feature 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.

Apple investors were rejoicing this week after the company reported first-quarter earnings that were far better than expected, thanks to strong iPhone sales. Throw in an additional $30 billion that the company plans to spend on stock buybacks and dividends, and shareholders ended the day with big grins. Perhaps the only blemish on an otherwise big day for Apple were sales of iPads. Analysts were expecting iPad sales to fall to 19.38 million from 19.48 million in the same quarter a year ago. Instead, the company said it sold only 16.35 million units. That dropoff was a shocker.

And during its earnings call on Wednesday, Apple chief executive Tim Cook jumped right in with an explanation. Cook said Apple should have done a better job highlighting for analysts how inventory issues might lead to what seemed like an usually steep drop in iPad sales. “IPad sales came in at the high end of our expectations, but we realized they were below analyst estimates, and I would like to proactively address, why we think there was a difference,” Cook said on the call. He explained that a year ago, the company had a hard time meeting iPad demand during the holiday quarter. As a result, a large number of iPad sales spilled into the March 2013 quarter, inflating those numbers.

T = Technicals on the Stock Chart are Strong

Apple stock has struggled to make significant progress over the last several quarters. However, the stock is currently trading near highs for the year and looks poised to continue. 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.

AAPL

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.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Apple options

19.31%

16%

14%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June 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 minimal 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 Increasing 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?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

15.16%

5%

-4.73%

-19.85%

Revenue Growth (Y-O-Y)

4.70%

5.65%

4.19%

0.86%

Earnings Reaction

8.02%*

-7.99%

-2.49%

5.13%

Apple has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Apple’s recent earnings announcements.

* As of this writing

P = Excellent 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

2.79%

-5.45%

9.69%

-31.60%

-5.14%

Apple has been a relative performance leader, year-to-date.

Conclusion

Apple strives to provide innovative products and services that consumers and companies love to own. The company investors were rejoicing this week after the company reported first-quarter earnings that were far better than expected, thanks to strong iPhone sales. The stock hasn’t made significant progress in the last several quarters, but is currently trading near highs for the year. Over the last four quarters, earnings and revenues have been on the rise, which has left investors pleased about recent earnings announcements. Relative to its peers and sector, Apple has been a year-to-date performance leader. Look for Apple to OUTPERFORM.

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