Good Things Come in Fives for AAPL

Alright, so I cheated a little on the title.  Good things are about to come in fives for AAPL.  The end of May will hopefully bring AAPL to new highs once AAPL breaks out of its current five month basing box.  Take a look at the chart below.  

AAPL has historically consolidated for five month periods. This pattern has occurred three times in the last twenty months.  The stock is up around 87% since September 31,2009, which is where the first box below starts.  While only 25% of the time after 10/1/09 is outside of the boxes, the majority of that 87% move occurred outside of the below boxes.  The stock is currently nearing the end of its third base pattern.  Because of AAPL's size, it takes much longer to base than a company 1/10th of its size. 
 


There is no question that they are absolutely knocking the cover off the ball from a company performance and growth standpoint.  It's unheard of that a 300+ billion dollar company is growing Q over Q revenues at greater than a 50% clip. This is especially true since they don't have enough supply to cover the current Iphone and Ipad demand.   

Much has been written recently on SA and other sites about what catalyst(s) need to happen for AAPL to move out of this range to new highs.  I vote for a 3 for 1 stock split and 35B share buyback, but I'm not in charge.  While there may be some near term catalysts that could move the stock, I would argue that the only thing AAPL needs is time.  If time is the enemy of a poorly run company, then it's the friend of a well run company like AAPL.   

If Apple earns $24.50 (very conservative) in FY 11 and simply grows EPS at 20% per year (below current avg analyst 5-yr growth estimate) in FY 15, EPS is around $51.  Put a 10 multiple on that and we are over $500, and at 20 P/E we are looking at a $1000 stock. Yes, I know the price will be based on forward looking growth and there will be margin compression, etc.  So, another way is AAPL has historically traded in the 18-20 multiple range in trailing twelve month EPS.  Right now, it's trading at 16.51, which is historically cheap.  FY 12 EPS estimated (29.50-probably low) multiplied by 18 puts us at $530, in 2013.  Many estimates have 100 BILLION cash on the books by the end of FY 2012.  There are only 35 publicly traded companies in the world with a Market Cap over 100 billion right now. 

In closing, if the previous patterns hold true, AAPL should complete this five month base pattern by the end of May and then move to new highs.  For confirmation, watch for a MACD crossover on the weekly chart in early June.  While I typically prefer volume as my number one technical indicator, it has not been helpful in the past with AAPL.       
 

 

 

 

 

Disclosure: I am long AAPL.