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Summary

  • APPL experienced an earnings trough in Q3 2013.
  • Since then earnings have started to grow.
  • But we cannot say the stock is back 'on track'.

Over the past few earnings cycles, Apple (NASDAQ:AAPL) has seen a trough in earnings growth. In the third quarter of 2013, earnings from Apple contracted by about 10% from the year prior. Since then, earnings growth has not been that bad, and officially, last quarter, the company started to grow again. According to current analysts' estimates, the company is also expected to continue along that path.

Our EPS growth chart below shows the trend in earnings growth on a yearly basis. We use 12-month trailing data for this observation, and as an example, we compare the trailing 12-month data this quarter to the trailing 12-month data that existed in the same period of last year to determine the yearly growth rate in earnings for this current quarter. The trough in earnings is quite clear from this chart.

(click to enlarge)

We cannot yet say that earnings growth has turned up solidly, but if the company matches estimates the yearly growth rate in our chart will increase to about 7.4%. The current growth rate is 4.5%, and the multiple of 15.5x compared to that 4.5% growth rate makes the stock look expensive, but if Apple manages to grow at 7.4% not only will the earnings growth chart show more of a turnaround, but the multiple will not look nearly as rich.

This observation does not suggest that multiple expansion is likely, but it does suggest that if Apple manages to meet analysts' expectations when it reports earnings it will at least be more close to fairly valued.

On a technical know, Apple is in the upper tier of its longer term trading channel and there are no immediate catalysts to buy or sell the stock. That can change when earnings are released, so monitor the stock price in conjunction with the support and resistance levels in our real time trading report for AAPL, but at the time this article was written there were no immediate catalysts to trade one way or the other.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: By Thomas H. Kee Jr. for Stock Traders Daily and neither receives compensation from the publicly traded companies listed herein for writing this article.

Source: The Earnings Trough For Apple