Here’s Why Apple Investors are Moving to iSell Mode

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:

colors appleC = 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.

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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…

E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio and balance sheet for Apple are perfect. That’s a rarity.

Debt-To-Equity

Cash

Long-Term Debt

AAPL

0.00

$29.13 Billion

$0

GOOG

0.09

$45.72 Billion

$2.99 Billion

RIMM

0.00

$2.73 Billion

$0

 

T = Technicals on the Stock Chart Are Weakening

Apple has had an amazing performance over the past three years. It has outperformed Google (NASDAQ:GOOG) by a wide margin. It has also outperformed Research In Motion Limited (NASDAQ:RIMM), but that should be expected. That said, one of the biggest scares for Apple investors should be the breakdown on the technical side. Many traders rely heavily on technical indicators, and Apple is now looking bearish. It’s a classic fight between TA and fundamentals. In most cases, TA will win for the short to medium term, and fundamentals will win out in the end.  

1 Month

Year-To-Date

1 Year

3 Year

AAPL

-6.52%

-8.78%

14.59%

147.70%

GOOG

3.61%

4.82%

26.63%

34.81%

RIMM

61.78%

48.69%

13.43%

-71.38%

 

At $461.90, Apple is currently trading below all its averages.      

50-Day SMA

536.46

100-Day SMA

593.54

200-Day SMA

593.83

 

E = Earnings Have Been Phenomenal

If you want to look at a near-perfect picture for earnings and revenue growth on an annual basis, then look at Apple.

2008

2009

2010

2011

2012

Revenue ($)in billions

37.49

42.90

65.22

108.25

156.51

Diluted EPS ($)

6.78

9.08

15.15

27.68

44.15

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

28.27

46.33

39.19

35.02

35.97

Diluted EPS ($)

7.06

13.87

12.30

9.32

8.66

 

T = Trends Support the Industry

Trends support the mobile device industry. This is one of the hottest industries in existence right now. Apple has been seeing stable demand, but more foreigners are moving toward Samsung (SSNLF.PK). Apple vs. Samsung should be an interesting battle in the coming years. Apple is involved in several other industries as well, but mobile devices are the key at the moment.

Conclusion

Apple is a great company, and that’s not going to change anytime soon. However, the bar has been set extremely high. In the future, Apple is likely to be more of a steady gainer than a high flyer, which some investors will be happy with. There is a good chance that the type of investors interested in Apple will change over the next few years.

At the present time, there is a lot of noise surrounding the company, which can lead to confusion. It’s always best to wait for clarity. Apple is currently a WAIT AND SEE.

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