Will Apple Stock Go Up After Earnings?

Investors reacted negatively to Apple’s recent Q3 2021 earnings report, taking the tech company’s shares down by around 3.5% in pre-market trading after it announced results in Q2. 

Apple smashed analyst estimates on both top and bottom lines in Q3, bringing in revenues of $81.4 billion and an earnings-per-share (EPS) of $1.30, topping previous Wall Street predictions of $73.4 billion and $1.01 respectively.

On a year-on-year basis, revenues were up 36% from $59.7 billion, and EPS doubled from $0.65.

And it wasn’t just these two keystone metrics that the company excelled in; Apple outperformed in every sector it collected data from.

In each of its product categories, the company delivered double-digit growth; it set new revenue records for every one of its geographic segments; and the firm grew sales of its flagship iPhone to $39.6 billion from $26.4 billion this time last year.

Historically, it’s normal for Apple stock to gain an average of 1.7% in its price for the two weeks prior to the release of earnings data, and for it to go up 0.8% the day after it releases figures. However, the company also loses 0.3% of its value just one day after earnings are reported.

But this didn’t happen last week, and the fall of over 3% post-results has got investors and analysts asking what’s in store for the company now. Here we’ll take a look at two scenarios – the bull and the bear case – to see what to make of these unusual times, and whether investors should buy more of Apple – or whether to cut loose while the going is still good.

Source: Unsplash

The Bear Case

The company’s continued reticence in issuing formal guidance is definitely a worry for the investors in the short-term. Indeed, Apple’s share price has probably performed worse than it should have in the last few quarters because of management’s lack of clarity in this regard. 

Even worse, perhaps, were the few comments that CEO Tim Cook did make during Apple’s post-results conference call. Alluding to the continued global semiconductor shortage, and remarks about its Services sector growth, many investors and analysts focused in on these few negative points to the detriment of all the good news coming out of the last quarter. 

On the supply chain question, the bottleneck in microchip production is expected to get worse later this year and will lead to industry-wide shortages as a result.

This is obviously a problem for Apple since its iPads and Macs rely heavily on semiconductor parts in their manufacture. It’s also more of a pressing problem this year too as the company is about to release its latest iPhone 13 in the fall.

Without any visible guidance from Apple how the specifics of how this will unfold, investors are rightly concerned on the silence emanating from the company’s Cupertino headquarters.

Furthermore, after an above average performance in its Services wing in the June quarter, the warning that growth would slowdown in September was also badly taken. Apple had unusually good figures to report for its Services business, with the sector up 33% compared to what is normally around the 20% mark.

Paid subscriptions grew especially well this year, with the total number now at 700 million, up 40 million from the second quarter. 

But despite how strong the quarter’s results were overall, the vague guidance and cautious notes have dampened enthusiasm in the short-term. Some analysts have kept to a Neutral rating for the company, including Bank of America (BAC) and Cabral, with BofA analyst Wamsi Mohan pointing to headwinds from depressed demand and weaker comparisons leading to decreased revenues and gross profits in the future.

The Bull Thesis

Apple (AAPL) is enjoying the benefits of three great tailwinds at the moment. First, its product sales are booming, with revenues from the iPhone growing 49.8% in the last quarter, and the Mac and iPad up 16.3% and 11.9%. Apple met soaring demand for its Mac and iPad range in large part by being able to manufacture its own M1 chip to power both of these machines.

Secondly, the company is also seeing strong growth in its international markets, most especially in Greater China (GC) and the Far East. Sales in GC were up a staggering 58.2% year-on-year, with consumers in the territory showing an insatiable appetite for Apple products all across the board, including the 12 Max and the 12 Pro, but also for the company’s Home and Accessories brands, its Wearables, and its various Services options.

Many purchases made in the Far East were also from first-time buyers, suggesting that the company is gaining in popularity with customers there. This is true too for many other emerging nations where Apple scored record quarterly results driven on the back favorable brand recognition.

And finally, the company’s profits are showing a marked uptick right now, with a gross margin of 43% up 80 basis points from the same quarter last year. Its Forward EBITDA is predicted to be somewhat lower at 16%, but this is still above the Information Technology sector median of just 12%.

Will Apple Stock Go Up After Earnings?

Apple’s record quarter was only bettered in recent times by its January results in 2020 and 2021. But don’t be fooled – the company looks to have priced in its gains after this latest earnings report, as its high Price-to-Sales multiple of 7.1 seems to attest.

A pivotal second half of the year looms, and with the launch of its new iPhone just around the corner, the decision by Apple’s management to remain tight-lipped on any meaningful guidance is bizarre. The company is not in trouble, yet; but if the firm’s shares continue to slide, investors will have to make a very difficult decision: buy the dip, or sell a falling business and re-enter at a later, opportune moment.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.