Apple (AAPL) recently made it onto Zacks.com's list of Most Searched Stocks, therefore, it may be wise to consider some key factors that could impact this stock's performance in the near future.
Over the past month, shares of this company, which makes products like iPhones and iPads, have risen +4.1% while the Zacks S&P 500 Composite Index has risen +3%. During that same period, the Zacks Computer – Micro Computer industry, which Apple belongs to, has risen 4%. The big question here is, what is the direction of this stock going forward?
Media announcements or rumors of significant changes in a company's business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
It essentially looks at how sell-side analysts covering the stock are revising their earnings forecasts to reflect the impact of the latest business trends. As a company's earnings forecasts rise, so does the fair value of its stock. If the fair value is higher than the current market price, investors will be interested in buying the stock, driving the share price up. This is why empirical studies have shown a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, Apple is expected to post earnings of $1.59 per share, which would represent a +8.9% change from the year-ago period. The Zacks Consensus Estimate has changed +2.5% over the past 30 days.
The consensus earnings estimate for the current fiscal year is $6.70, indicating a change of +9.3% year over year. Over the past 30 days, this estimate has changed +1.4%.
Looking at the next fiscal year, the consensus revenue estimate is $7.55, which represents a +12.8% change from what Apple was expected to report a year ago. Over the past month, estimates have changed +2%.
The Zacks Rank, our proprietary stock rating tool that has an impressive outside-audited track record, effectively harnesses the power of earnings estimate revisions and is a more reliable indicator of near-term stock price movements. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings expectations, has earned Apple a Zacks Rank of #3 (Hold).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Apple, the consensus revenue estimate for the current quarter is $94.12 billion, indicating a +5.2% change year-over-year. Estimates for the current and next fiscal years are $390.22 billion and $424.35 billion, indicating changes of +1.8% and +8.8%, respectively.
Last reported results and surprise history
Apple reported revenue of $85.78 billion for the most recent quarter, up 4.9% from the same period last year. EPS for the quarter was $1.40, up from $1.26 in the same period last year.
Compared to the Zacks Consensus Estimate of $84.43 billion, reported revenues represented a surprise of +1.59%. EPS surprise was +4.48%.
The company has beaten consensus EPS estimates in each of the last four quarters, and revenue also beat consensus estimates in each quarter during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S), Price to Cash Flow (P/CF) with its historical values helps in identifying whether the stock is fairly valued, overvalued or undervalued. Also, comparing a company with its peers based on these parameters gives a good idea of how reasonably priced its stock is.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
Apple has a D rating on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Apple is worth following, however, its Zacks Rank #3 suggests the company is likely to perform in line with the overall market in the near future.
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