With the release of the eagerly awaited Apple Watch scheduled to open the weekend prior to Apple Inc.’s (NASDAQ:AAPL) equally anticipated earnings report, it is by no exaggeration that the next few days will represent a critical pivot point for AAPL stock.
Unlike the rabid fever for the iPhone, consumer demand for smartwatches is largely unproven — something Samsung Electronics Ltd. (OTCMKTS:SSNLF) learned the hard way — and Apple is responding in an un-Applish manner: toning down its usual hubris with an online-only launch.
Another confirmation of the changing tides at 1 Infinite Loop occurred last month on March 18 when Apple stock was included as part of the 30 companies that make up the Dow Jones Industrial Average. But rather than a source of celebration, such an honor historically has proven to be a dubious one, with Chris Gessel, executive editor of Investor’s Business Daily, pointing out that inclusion into the Dow is usually a harbinger that a company is past its peak.
Fortunately for many bullish investors, the statistics directly related to Apple’s earnings performance show no evident signs of a slowdown for now.
Apple Earnings by the Numbers
In fact, the opposite is true: Over the past 13 Apple earnings reports, the company has only missed twice in the latter half of 2012. Currently, it’s on a nine-hit winning streak. The consensus target for Q2 2015 is $2.14, and in the absence of any extremely negative news for the past few months, Apple stands a reasonable chance of hitting or exceeding.
Furthermore, AAPL traders have proven to have a reliable sixth sense when it comes to forecasting Apple earnings.
Since January 2012, whenever AAPL’s week-over-week performance is positive heading into the week of its earnings release, the result has always been a consensus-busting showcase. The current performance of AAPL stands at 1.73% prior to next Monday’s financial report, which suggests yet another win on the earnings column. As an added bout of confidence for the math geeks out there, from October 2012 through February 2015, there has been a strong statistical correlation between AAPL’s pre-earnings performance and the magnitude of the subsequent earnings surprise.
More impressive, though, is AAPL’s market response after each quarterly report.
Over the past three years, Apple stock has failed to rise a month after an earnings release on only two occasions. Even including those two misses, the average one-month response is a gain of 4.21%.
Nor has this phenomenon died down in recent trades: The past four earnings reports have seen an average market response of 4.95%.
Still, a word of caution is warranted.
Apple stock’s performance over the last five weeks is a paltry 0.17% due to sharp volatility that occurred in mid-April and late March. Given similar technical conditions in the past, there is only a 55% probability that shares will be trading higher by the end of next month.
So the question that will plague investors over the next 30 days is whether to place more trust in Apple earnings’ history or AAPL’s near-term momentum, or lack thereof.
Bottom Line
Overall, market conditions favor the bullish gambler, but Apple stock is no longer an easy bet. It will have much to prove as it attempts to beat the Dow Jones curse.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
