an apple ( AAPL ) has been one of the most popular stocks on Zacks.com recently. Therefore, you can consider some facts that may affect the performance of the stock in the near term.
Over the past month, shares of this maker of iPhones, iPads and other products have returned +12.7%, compared to a change in the Zacks S&P 500 index of +5%. Zacks Computer’s minicomputer industry, which includes Apple, grew 4% during the period. The main question now is: What might be the future direction of stocks?
While media reports or rumors of significant changes in a company’s business outlook usually cause its stock to trend and immediately change its price, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revision of profit estimates
Instead of focusing on anything else, we at Zacks prioritize evaluating a company’s earnings forecast change. This is because we believe that the fair value of its shares is determined by the present value of its future income stream.
Essentially, we look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of recent business trends. And when a company’s earnings estimates rise, the fair value of its stock rises. A higher fair value than the current market price stimulates investors’ interest in buying the stock, leading to an increase in its value. This is why empirical research shows a strong correlation between trends in earnings estimates revisions and short-term stock price movements.
Apple’s current quarter earnings are expected to be $2.12 per share, representing a change of +1% compared to last year’s quarter. The Zacks Consensus Estimate has changed -0.2% over the past 30 days.
The consensus earnings estimate of $6.42 for the current fiscal year indicates a year-over-year change of +5.1%. This estimate has changed by -1.2% over the past 30 days.
For the next fiscal year, the consensus estimate for earnings of $6.94 represents a change of +8.1% from what Apple expected in the report a year ago. Over the past month, the estimate has changed by +0.6%.
With impressive externally audited track record, our proprietary stock valuation tool – the Zacks Rank – is a more compelling indicator of a stock’s momentum price as it effectively harnesses the power of earnings revisions. The size of the recent change in the consensus estimate along with three others factors related to income estimatesresulted in a Zacks Rank #3 (Hold) for Apple.
The chart below shows the company’s 12-month change in the consensus EPS estimate:
12-month earnings per share
Projected income growth
While revenue growth is arguably the best indicator of a company’s financial health, nothing happens if a business can’t grow its revenue. After all, it’s nearly impossible for a company to grow its revenue over a long period of time without growing revenue. Therefore, it is important to know the potential revenue growth of the company.
In Apple’s case, the consensus sales estimate of $127.68 billion for the current quarter indicates a year-over-year change of +3%. Estimates of $412.57 billion and $434.37 billion for the current and next fiscal years show changes of +4.6% and +5.3%, respectively.
Latest results and history of surprises
Apple reported revenue of $90.15 billion in its most recent reported quarter, representing a year-over-year change of +8.1%. Earnings per share are $1.29 for the same period, compared to $1.24 a year ago.
The reported revenue represented a +1.9% surprise compared to the Zacks Consensus Estimate of $88.47 billion. EPS surprise was +2.38%.
The company has topped consensus EPS estimates in each of the past four quarters. The company beat consensus revenue estimates every time during that period.
Assessment
No investment decision can be effective without taking stock valuation into account. Whether the current stock price correctly reflects the intrinsic value of the company’s core business and growth prospects is a significant factor in determining its future price performance.
Comparing the current value of a company’s valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values helps determine whether the company is fairly valued, overvalued or undervalued its shares, while comparing the company with its peers on these parameters gives a good idea of the reasonable price of its shares.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups from A to F (A is better than B; B is better than C; and so on). which helps determine whether a stock is overvalued, correctly valued, or temporarily undervalued.
Apple received a D grade on this front, indicating that it trades at a premium to its peers. Click here to see the values of some of the evaluation metrics that led to this grade.
Bottom line
The facts discussed here and plenty of other information on Zacks.com can help determine whether you should pay attention to the market hype surrounding Apple. Still, the third-place Zacks Rank suggests it may be in line with the broader market in the near term.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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