Seeking Alpha
Profile| Send Message|
( followers)  

By Jun Chen

In 2012, Apple (NASDAQ:AAPL) shares went for a crazy roller coaster ride, rising to all-time highs of $705.07 and then eventually ending up in bear market territory by the end of the year. Currently, it is already 31.08% off of its all-time highs ending at $485.92 on Tuesday, Jan 15, 2013. Apple's first quarter earnings are scheduled to be released on Jan 23rd in after-hours followed by a conference call with Tim Cook, CEO, and Peter Oppenheimer, CFO. But before this comes to pass, there are several factors to consider before solidifying any position in the stock. This is by far the most important quarter to analyze ahead of the 2013 fiscal year. It will be the first time in three years where the stock is in actual bear market territory along with lowered analyst expectations.

Volume Analysis

In the trading world, analyzing volume is a critical way to determine if a move to the downside or upside has any merit to it. Looking at the volume data from the past 2 months, many of the days that Apple has experienced a decline has also been accompanied with volume over 20mil. In the past three days, volume surged enormously. On Jan 15th, 31mil shares traded, the highest amount so far in 2013 and relatively high in comparison to the daily volume in last month. This tells us that the move to the downside is not down yet. Only when volume starts to decrease dramatically is when we may see a bottom on Apple. There are only two scenarios that can happen. Since the decline on Jan 15th was so abrupt, there has to be a huge spike in volume in order for the stock to go up, possibly around 40mil in the next few days. If there aren't enough buyers to create that surge to the upside, Apple will continue to decline due to the rising volume trend associated with the last three trading days.

DateClose% changeVolume
11/30/2012585.28 13,975,700
12/3/2012586.190.16%13,010,000
12/4/2012575.85-1.76%19,895,300
12/5/2012538.79-6.44%37,308,500
12/6/2012547.241.57%42,043,300
12/7/2012533.25-2.56%28,108,600
12/10/2012529.82-0.64%22,517,300
12/11/2012541.392.18%21,155,200
12/12/2012539.00-0.44%17,398,000
12/13/2012529.69-1.73%22,330,700
12/14/2012509.79-3.76%36,056,400
12/17/2012518.831.77%27,057,400
12/18/2012533.902.90%22,345,900
12/19/2012526.31-1.42%16,048,900
12/20/2012521.73-0.87%17,203,200
12/21/2012519.33-0.46%21,295,300
12/24/2012520.170.16%6,276,900
12/26/2012513.00-1.38%10,801,300
12/27/2012515.060.40%16,254,300
12/28/2012509.59-1.06%12,652,800
12/31/2012532.174.43%23,553,300
1/2/2013549.033.17%20,018,500
1/3/2013542.10-1.26%12,605,900
1/4/2013527.00-2.79%21,226,200
1/7/2013523.90-0.59%17,291,300
1/8/2013525.310.27%16,382,400
1/9/2013517.10-1.56%14,557,300
1/10/2013523.511.24%21,469,500
1/11/2013520.30-0.61%12,518,100
1/14/2013501.75-3.57%26,179,000
1/15/2013485.92-3.15%31,243,700

Competition

Currently worrying Apple investors are the sales of a particular product by Samsung. In November, Samsung reported a record 30mil units sold in a five month period, making it the number one smartphone by sales worldwide which can dig into Apple iPhone 5 sales figures. In 2012, Apple noted in its 10-k filing that a majority of the marketing budget was focused on increasing smartphone market share which has shown tremendous growth rates year over year. However, this quarter's iPhone sales are expected to be lower than estimates. The Wall Street Journal reported that the company has cut orders on the components of the iPhone 5 by more than 50%, indicative of a slow down. Below is a chart of previous iPhone sales by quarter and year (taken from the company's Quarterly Earnings reports).

Units Sold

30-Dec-11

37,044,000

31-Mar-12

35,064,000

-5%

30-Jun-12

26,028,000

-26%

30-Sep-12

26,910,000

3%

Units Sold

FY 10

39,989,000

FY 11

72,293,000

80.78%

FY 12

125,046,000

72.97%

Growth in Chinese Market

In recent developments, Tim Cook has been spotted meeting with Chinese executives of China Mobile, the world's largest wireless carrier. So far, Apple does not have a deal with China Mobile, who already sells Samsung and Nokia phones. Tim Cook also made a press release hinting of a growing Apple presence in China. In an interview with Sina (through Google translate), Cook noted, "China has always been Apple's most important market in the world, is now our second largest market and I am confident that in the near future, China will become Apple's largest market in the next year." In the Jan 23rd earning's release, make sure to look for sales growth in the Chinese market relative to QoQ % change and YoY % change.

The Collective Sales Figures of iPad and iPad Mini

This will be the first quarter the iPad Mini will be reflected on the company's financial statements. What to look for is the amount of cannibalizing the mini has done to the original. Morgan Stanley analysts have projected that 47% of new mini buyers are new to the platform, which would establish estimates of a slight increase in iPad sales along with meeting expectations on iPad Mini sales figures.

(click to enlarge)

Market Comparison
Relative to the performance of index benchmarks like the S&P 500 and technology ETF (NYSEARCA:XLK), Apple has been a tremendous laggard. Looking on the Daily chart, as the markets and technology sector experienced surges, AAPL has continued its volatile decline. If this trend were to continue, Apple will inexorably crack the main support level $500. Coupled with lowered analyst expectations for the quarter, this does not seem like the quarter to invest in Apple. Risk would be the downside of Apple not meeting the already lowered expectations along with other indications of a decreasing sales trend.

No matter what the earnings, Apple's balance sheet remains one of the strongest in the industry. With over $110bil in cash reserves and a relatively low P/E ratio (NYSE:TTM) of only 11.78, the stock price embellishes undervaluation. Comparative to companies like Google (NASDAQ:GOOG) with a P/E of 22.4648 and AT&T (NYSE:T) with a P/E of 14.9651, Apple seems relatively cheap. In addition, many companies still maintain a long term price target of around $700. However, this quarter's earnings might not be the best time to get long given the current significant downward pressure accompanied by probable missed estimates of sales figures and EPS.

Source: Criteria To Consider For Apple's Q1 FY13