Apple (AAPL) recently made Zacks.com’s Most Wanted Stock list. Therefore, you may want to consider some of the key factors that may influence the stock’s performance in the near future.
Over the past month, shares of this maker of iPhones, iPads and other products have returned -14.1%, compared to the -11.1% change in the Zacks S&P 500 composite. over this period, the Zacks Computer – Minicomputers industry, of which Apple is a part, lost 10.8%. The key question now is: what could be the future direction of the title?
While press releases or rumors about a substantial change in a company’s trading outlook usually “trend” its stock and cause an immediate price change, there are always fundamental facts that ultimately dominate the take. purchase and retention decision.
Revisions to earnings estimates
At Zacks, we prioritize evaluating change in a company’s future earnings projection over anything else. This is because we believe that the present value of its future income stream is what determines the fair value of its stock.
We basically look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest trading trends. And if earnings estimates increase for a company, the fair value of its shares increases. A higher fair value than the current market price stimulates investors’ interest in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
Apple is expected to post earnings of $1.25 per share for the current quarter, representing a year-over-year change of +0.8%. Over the past 30 days, the Zacks consensus estimate has changed by +0.2%.
For the current year, the consensus earnings estimate of $6.10 indicates a change of +8.7% from the prior year. Over the last 30 days, this estimate has changed by -0.3%.
For the next fiscal year, the consensus earnings estimate of $6.48 indicates a change of +6.2% from what Apple is expected to report a year ago. Over the past month, the estimate has changed by -0.3%.
With an impressive externally audited balance sheet, our proprietary stock rating tool – the Zacks Ranking – is a more conclusive indicator of a stock’s short-term price performance because it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent change in the consensus estimate, plus three more factors related to earnings estimatesresulted in a Zacks Rank #3 (Hold) for Apple.
The chart below shows the evolution of the company’s consensus 12-month EPS estimate:
12 month EPS
Expected revenue growth
While a company’s earnings growth is arguably the best indicator of its financial health, nothing happens if it can’t grow its revenue. It is almost impossible for a company to increase its profits without increasing its revenue for long periods of time. Therefore, knowing the potential revenue growth of a business is crucial.
For Apple, the consensus sales estimate for the current quarter of $88.06 billion indicates a year-over-year change of +5.6%. For the current and future fiscal years, the estimates of $392.24 billion and $411.42 billion indicate variations of +7.2% and +4.9%, respectively.
Latest reported results and history of surprises
Apple reported revenue of $82.96 billion in the last quarter, representing a year-over-year change of +1.9%. EPS of $1.20 for the same period versus $1.30 a year ago.
Compared to the Zacks consensus estimate of $81.99 billion, reported revenue is a surprise +1.19%. Surprise EPS was +5.26%.
In the past four quarters, Apple has exceeded consensus EPS estimates three times. The company has exceeded consensus revenue estimates three times during this period.
No investment decision can be effective without considering the valuation of a stock. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key determinant of its future price performance.
While comparing the current values of a company’s valuation multiples, such as the price-to-earnings (P/E) ratio, the price-to-sales (P/S) ratio, and the price-to-cash flow (P/CF) ratio , with its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of the reasonableness of the stock price .
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to traditional and unconventional valuation metrics to rank stocks from A to F (an A is better than a B; a B is better than a C; and so on), is quite useful in determining whether a stock is overvalued, correctly priced, or temporarily undervalued.
Apple is rated D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the rating metrics that led to this rating.
The facts discussed here and plenty of other information on Zacks.com might help determine whether or not it’s worth paying attention to the market buzz about Apple. However, its No. 3 Zacks ranking suggests it could perform in line with the broader market in the near term.
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