Does Apple Support Higher Prices?

With shares of Apple (NASDAQ:AAPL) trading around $430, 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:

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T = Trends for a Stock’s Movement

Apple designs, manufactures, and markets mobile communication and media devices, personal computing products, and portable digital music players worldwide. Its products and services include iPhone, iPod, iPad, iMac, Mac Pro, Mac mini, MacBook Pro, MacBook Air, iPods, iCloud, iOS, and OS X. The aesthetically pleasing products that Apple creates have gained a significant amount of traction over the last decade. Around the world, the products and services provided by Apple are seeing exponential growth in demand that will continue into the future.

T = Technicals on the Stock Chart are Weak

Apple stock has witnessed a very strong rally in the long term but has seen increased selling in recent times. Currently, the stock has been declining over the last six months. 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 below its key averages which signal neutral to bearish price action.

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

35.46%

96%

90%

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

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Put IV Skew

Call IV Skew

April Options

Steep

Average

May Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a good amount of call and put option contracts and are leaning neutral to bearish 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?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-0.43%

22.66%

19.64%

92.19%

Revenue Growth (Y-O-Y)

17.66%

27.24%

22.58%

58.86%

Earnings Reaction

-12.35%

-0.9%

-4.31%

8.87%

Apple has seen increasing earnings and revenue growth over the last four quarters. From these figures, the markets have been expecting more from Apple’s last four earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Apple stock done relative to its peers, Google (NASDAQ:GOOG), Hewlett-Packard (NYSE:HPQ), Research in Motion (NASDAQ:BBRY), and sector?

Apple

Google

Hewlett-Packard

Research In Motion

Sector

Year-to-Date Return

-21.91%

9.79%

47.74%

27.96%

1.56%

Apple has been a relative underperformer relative to its peers and sector, year-to-date.

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Conclusion

Apple is a giant company that is providing products and services enjoyed by consumers and businesses worldwide. The stock has not done too well in recent times as investors are not pleased with with their earnings and revenue growth rates. Relative to its peers and sector, Apple has trailed its peers and sector by a wide margin. WAIT AND SEE what Apple does in the coming quarter.

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