Is Apple Well-Positioned for the Future?

With shares of Apple (NASDAQ:AAPL) trading around $507, 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’s roster of devices is hitting a sales ceiling, underscoring why it’s crucial for CEO Tim Cook to deliver the company’s first new products since 2010 to revive growth. Apple shares dropped after the Cupertino, California-based company reported iPhone sales for the holiday season that missed analyst estimates in what is typically the most lucrative period of the year for the device maker. Apple also projected that revenue in the current period may fall from a year earlier in what would be the first quarterly sales decline since 2003. Last year, Apple posted its first profit drop in more than a decade.

The figures indicate that demand may be ebbing for Apple’s devices — which were once reliable growth engines — as competitors flood in with their own smartphones and tablets. Cook said sales in North America were weaker than the company expected, partly because the less-expensive iPhone 5C released last year wasn’t as popular as the higher-end iPhone 5S. The stagnating growth is adding pressure for the company to release new hit products, be it a wearable computer or a way for paying for things with an iPhone or a television.

T = Technicals on the Stock Chart Are Mixed

Apple stock has struggled to make significant progress in the last several quarters. The stock is currently pulling back and may need time to consolidate before heading higher. 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 between its rising key averages, which signals neutral 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

24.3%

0%

0%

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

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

5%

-4.73%

-19.85%

-17.97%

Revenue Growth (Y-O-Y)

5.65%

4.19%

0.86%

11.27%

Earnings Reaction

-7.09%*

-2.49%

5.13%

-0.16%

*As of this writing.

Apple has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have had conflicting 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), and BlackBerry (NASDAQ:BBRY) — and sector?

Apple

Google

Microsoft

BlackBerry

Sector

Year-to-Date Return

-8.83%

-0.01%

-3.46%

34.61%

-3.1%

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

Conclusion

Apple strives to provide innovative products and services that consumers and companies love to own. The company’s shares dropped after the company reported iPhone sales for the holiday season that missed analyst estimates. The stock hasn’t made significant progress in the last several years and is currently pulling back. Over the last four quarters, earnings and revenues have been rising. However, investors have had conflicting feelings about recent earnings announcements. Relative to its peers and sector, Apple has been a poor year-to-date performer. WAIT AND SEE what Apple does next.

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.

More from Wall St. Cheat Sheet:

More from The Cheat Sheet