For proof that “investing” in bigger-than-life stocks can do some serious damage to your portfolio, look no further than Apple (AAPL). Apple stock is down nearly 5% today following the company’s fiscal Q3 report submitted after the close on Tuesday.
Though the Apple earnings figures posted were better than good, some of them simply weren’t good enough to meet the market’s (unfairly) lofty expectations. Even worse, Apple offered disappointing revenue guidance for the current quarter.
And yet, the uncomfortable truth of the matter is, AAPL stock may have been destined for a pullback today no matter what kind of numbers it reported for Q3 or suggested for Q4 … another one of the pitfalls of trading a name everybody else loves to trade.
Apple Earnings Results for Q3
In its third fiscal quarter of 2015 — calendar Q2 — Apple earned $1.85 per share on $49.6 billion in sales. Both figures topped estimates. Analysts were only looking for a profit of $1.81 per share of AAPL stock and a top line of $49.4 billion.
Sales were also up a whopping 33% on a year-over-year basis, while net income was up a staggering 38% compared to fiscal Q3-2014’s bottom line.
It gets better.
Apple sold a massive number of iPhones last quarter … 47.5 million in all. It also produced record revenue from its services like the iTunes store, and as far as fiscal third quarters go, this was one of the best ones APPL stock owners have seen in a long, long time.
The bad news: The market was collectively forecasting iPhone sales of 50 million units, and the company said its revenue for fiscal Q4 would roll in somewhere between $49 billion and $51 billion, versus a consensus estimate of $50.9 billion. Never mind the fact that, even at the low end of that predicted range, Apple would still be posting its best-ever fiscal fourth quarter. Likewise, even nearly a year after its launch, the current iPhone is still selling phenomenally.
And that’s when it becomes clear … owning AAPL stock isn’t a matter of participating in the company’s success. It’s a matter of figuring out whether or not the Apple earnings estimates are reasonable, and how the market might react to a beat, a miss, or guidance. That’s not investing. It’s barely even trading. Mostly, it’s gambling, at least in the short run.
The Red Flags For Apple Stock Were There
Inasmuch as AAPL stock is a crapshoot in the near-term, in retrospect, Wednesday’s dip shouldn’t be a bit surprising to those who cared to look at a chart heading into the Apple earnings news.
For the fourth time since February, shares were testing a big-time resistance line at $133.17. That pause at a well-established ceiling should have been a clue the bulls were taking the unusual step of not pushing shares higher right though the announcement.
In fact, if you look closely, you’ll find AAPL stock was already peeling back from the $133.17 mark on Tuesday, before earnings were released after the close. It was a subtle hint that most investors didn’t have a great deal of faith the company was going to serve up great news across the board.
Yet, even with today’s sizeable pullback, it can’t overlooked that AAPL stock remains above its key 200-day moving average line (green), and is still very much in a long-term uptrend even if it’s dishing out some short-term pain.
And it’s in that light where the sage, cliche wisdom of Benjamin Graham becomes oh-so-apropos: “In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
Today’s stumble is a vote based on today’s perception of those who care to trade AAPL stock. Given time, the market will accurately weigh the results the company is producing, and it will be fairly reflected in the stock’s price.
Bottom Line for AAPL
Truth be told, none of this reality check regarding AAPL’s status as a near-term wagering instrument is surprising. Even those traders who don’t consciously understand this still somehow innately know when they tangle with the most watched stock on the planet, it’s going to backfire at least some of the time.
This is one of those times.
This short-term pain, however, doesn’t change the fact that long-term investors should be thrilled about the absolute results the company is producing, and not worry about the comparisons to expectations. Even on its worst days, AAPL stock is still a better long-term investment than most other stocks on their best day.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.