Innovation Questions Aside, Is Apple Stock a Buy?

With shares of Apple (NASDAQ:AAPL) trading around $455, 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 a variety of accessory, service, and support offerings. Apple also delivers digital content and applications through its iTunes, App, iBook, and Mac App stores.

Apple is pressing CEO Tim Cook to innovate further, Fox Business reports. Concerns exist over the pace of products rolling out, especially ones that are fresh and dynamic. While the iWatch rumors continue to circulate, the company has been focusing on projects like lower-cost iPhones in order to better compete in markets where users are looking for cheaper smartphones. Apple and Samsung are also set to face off in court Friday to settle one of their many patent battles.

T = Technicals on the Stock Chart are Strong

Apple stock has witnessed an explosive move higher in recent years. However, the stock has traded lower and consolidated in the last several months, so it may need a little more time. 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 signals neutral to bullish price action in the near term.

AAPL

Source: Thinkorswim

Taking a look at the implied volatility 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

21.81%

0%

0%

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

August Options

Flat

Average

September Options

Flat

Average

As of Friday, 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.

E = Earnings Are Mixed 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-19.85%

-17.97%

-0.43%

23.03%

Revenue Growth (Y-O-Y)

0.86%

11.27%

17.65%

27.22%

Earnings Reaction

5.13%

-0.16%

-12.35%

-0.90%

Apple has seen mostly decreasing earnings and rising revenue figures over the last four quarters. From these numbers, the markets have been had mixed feelings about Apple’s recent earnings announcements.

P = Weak 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

-14.30%

26.25%

22.73%

-16.80%

9.39%

Apple has been a weak relative performer, year to date.

Conclusion

Apple is one of the most innovative companies of our time, and it continues to provide products and services that consumers and companies are excited to own. The stock has not done well in the past several years, though, and it looks to be forming a base in recent months. Over the last four quarters, investors in the company have had mixed feelings about the company, as earnings have been decreasing while revenue figures have been rising. Relative to its peers and sector, Apple has been a poor year-to-date performer. WAIT AND SEE if Apple can break above its base.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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