Here’s what to know beyond why Apple Inc. (AAPL) is a trending stock
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.
Shares of this maker of iPhones, iPads and other products have returned -7.7% over the past month compared to the -8% change in the Zacks S&P 500 composite. The Industry Zacks Computer – Minicomputers, which Apple owns, lost 8.2% over that period. Now the key question is: where could the stock be heading in the near term?
Although media reports or rumors of a material change in a company’s business outlook usually cause its stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately determine the buy and hold 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.
Our analysis is primarily based on how sell-side analysts covering the stock revise their earnings estimates to reflect the latest trading trends. When a company’s earnings estimates increase, the fair value of its stock also increases. And when the fair value of a stock is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term movements in stock prices.
Apple is expected to post earnings of $1.14 per share for the current quarter, representing a year-over-year change of -12.3%. Over the past 30 days, the Zacks consensus estimate has changed by -0.1%.
The current year earnings consensus estimate of $6.11 indicates a year-over-year change of +8.9%. This estimate has changed by -0.1% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of $6.63 indicates a change of +8.6% from what Apple is expected to report a year ago. Over the past month, the estimate has changed by -0.3%.
With a strong externally audited track record, our proprietary stock rating tool, Zacks Rank, provides a more conclusive picture of a stock’s price direction in the short term, as it effectively harnesses the power of earnings estimate revisions. . Due to the magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Apple is ranked Zacks Rank #3 (Hold).
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.
In the case of Apple, the consensus sales estimate of $82.36 billion for the current quarter indicates a year-over-year change of +1.1%. Estimates of $394.45 billion and $418.67 billion for the current and next fiscal year indicate changes of +7.8% and +6.1%, respectively.
Latest reported results and history of surprises
Apple posted revenue of $97.28 billion in the last quarter, representing a year-over-year change of +8.6%. EPS of $1.52 for the same period versus $1.40 a year ago.
Compared to the Zacks consensus estimate of $94.54 billion, reported revenue is a surprise +2.9%. Surprise EPS was +6.29%.
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.
Without considering the valuation of a stock, no investment decision can be effective. Crucial to predicting a stock’s future price performance is whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Compare the present value of a company’s valuation multiples, such as its price/earnings (P/E), price/sales (P/S), and price/cash flow (P/CF), to its own historical values help determine whether its stock is fairly valued, overvalued or undervalued, while comparing the company against its peers on these metrics gives a good idea of the reasonableness of its 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 C on this front, indicating that it trades at par with its peers. Click here to see values for 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.
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.