Apple Inc. (NASDAQ:AAPL), the largest U.S. company by market capitalization, is set to report earnings on Nov. 2 and and investors everywhere are pondering what will happen to AAPL stock in the following days.
Strong positive sentiment has arisen surrounding the company’s iPhone X launch on Nov. 3. With the phone now officially sold out, and a growing waiting list easing worries that demand for the iPhone X may be much less muted than initially thought given the smart phone’s $1,000+ price tag, concerns remain that the AAPL stock price could dip following earnings as investors take profits off the table, “selling the news,” so to speak.
Selling the News
A “sell the news” strategy is based on the belief that this latest hone, which has yet to contribute to earnings, will have dominated much of the bandwidth analysts have devoted to Apple’s actual operating performance. These pre-orders are real and Apple’s fourth quarter is stacked up to be a very profitable one, however the question of exactly how this new iPhone will captivate consumers is a question which has yet to be answered by the broader public.
The typical hype and hysteria around the user-friendly aspects of Apple’s new shiny products often masks what turns out to be some level of consumer apathy. While we live in a world where the latest and greatest gadget soon becomes merely a part of life, and consumers move on to the next innovation Apple can provide in its never-ending pipeline of consumer-friendly products. The story of how Apple will continue to innovate moving forward is a discussion perhaps reserved for another day, however sentiment among some analysts is that the Apple earnings release may mark a time for reflection for many investors who have priced in the iPhone X into their valuation models and will begin looking forward to the future.
Source: Statista
To be sure, the company’s smart phone division is one cog in a much larger machine that continues to churn out incredible profits year after year. Discussions about how Apple will handle its massive cash hoard off-seas remains, and should the Trump Administration indeed introduce legislation aimed at lowering what can be objectively viewed as an exorbitantly high repatriation tax, Apple shares could see continued momentum which could push the tech company above the $1 trillion market capitalization, as predicted by some analysts, as soon as 2018.
Trillion Level Requires $200 AAPL Stock
While calls for a $1 trillion market capitalization may be ambitious, if any company is able to continue to build on its forward momentum, Apple has proved it has the ability to do so. With the company’s market capitalization rising more than $80 billion in a little more than a month, passing through the psychologically important threshold of $1 trillion may indeed come sooner than expected, with the AAPL stock price topping $200 a share
On a fundamental valuation basis, Apple remains relatively attractively valued, despite its sharp uptick of more than 45% since the beginning of the year. The company trades at a forward price-to-earnings ratio of 15, far below the average for its peers, with a price-to-sales ratio of 3.9 and a price-to-book multiple of 6.6.
The company’s earnings release tomorrow is likely to be a big day for investors, and the direction of the AAPL stock price by week’s end may turn out to be better than expected for the “sell the news” naysayers. I guess we’ll all have to wait and see.
As of this writing, Chris MacDonald did not hold a position in any of the aforementioned securities.
