Apple Inc. (NASDAQ:AAPL) Can shares keep outperforming while trading at the high point of their five-year historical high?
Despite concerns earlier in the year about iPhone demand, Apple Inc. shares have rebounded nicely — so nicely, in fact, that the stock is now “as expensive as ever.”
That’s according to Bernstein analyst Toni Sacconaghi, who pointed out Thursday that Apple shares AAPL, -1.07% are currently trading at 17 times forward earnings estimates, in line with their historical five-year high. While such a multiple may be cheap for big tech, it’s fairly high for a hardware brand.
Sacconaghi has heard two potential explanations for Apple’s rising valuation: increasing belief that Apple shares should trade like those of a high-end consumer brand and a stronger focus on valuing Apple based on the sum of its parts, taking into account new disclosures and efforts concerning its services business.
“While we are constructive on the ‘consumer brand’ thesis, we remind investors that Apple remains a fairly cyclical stock with over half of its revenues derived from a single mature product, the iPhone,” he wrote. “Moreover, unlike luxury handbags, jewelry or even dish soap, the iPhone is inherently subject to replacement cycle, commoditization and disruption risk.”
Even Swiss watchmakers, in their luxury space, see their shares trading at 16 times to 19 times forward earnings, which doesn’t suggest too much room for Apple’s valuation to move higher even if investors begin to place the stock in the luxury camp.
In considering Apple on a sum-of-the-parts basis, Sacconaghi also doesn’t see “material upside” to its current valuation.
“While the company has done an excellent job of driving services [average revenue per user] growth recently,” even ascribing a 25 to 30 multiple to Apple’s services earnings requires a belief that Apple’s hardware business should trade at a multiple of 12 to 15 “with no conglomerate discount — which is relatively generous compared with other hardware companies that are challenged to grow,” he wrote.
Sacconaghi said it’s “certainly possible” that Apple shares could outperform in the near future, even as they trade at elevated levels relative to the company’s average. The big question is whether shares will “re-rate” higher in the long term, or come to be viewed by investors as worthy of a higher multiple.
That’s possible, too, in Sacconaghi’s view. Apple is “a relatively better business” than it was three years ago, he admitted, as the high-margin services segment grows to be a larger portion of overall revenue. If the replacement cycle for iPhones were to stabilize this year, the services line could become an even bigger contributor, helping Apple’s valuation.
But Sacconaghi isn’t quite sold. “On net, however, we continue to believe the risk-reward on Apple remains neutral today.”
He has a market perform rating and $190 price target on shares, which have risen 28% so far this year, as the Dow Jones Industrial Average DJIA, -0.54% has risen 11%. Apple is among the Dow’s 30 components.
Overall, the bias in prices is: Upwards.
The projected upper bound is: 209.29.
The projected lower bound is: 193.18.
The projected closing price is: 201.24.
A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 27 white candles and 23 black candles for a net of 4 white candles.
A falling window occurred (where the bottom of the previous shadow is above the top of the current shadow). This usually implies a continuation of a bearish trend. There have been 4 falling windows in the last 50 candles–this makes the current falling window even more bearish.
A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).
A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 19.6915. This is an oversold reading. However, a signal is not generated until the Oscillator crosses above 20 The last signal was a sell 9 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 49.28. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 3 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is -143.This is an oversold reading. However, a signal isn’t generated until the indicator crosses above -100. The last signal was a sell 3 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a sell 9 period(s) ago.
Rex Takasugi – TD Profile
APPLE INC closed down -2.180 at 200.720. Volume was 15% above average (neutral) and Bollinger Bands were 28% narrower than normal.
Open High Low Close Volume___
200.400 201.680 196.660 200.720 34,908,608
Short Term: Oversold
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 205.60 193.59 192.51
Volatility: 38 26 39
Volume: 33,755,968 28,709,712 34,381,076
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
APPLE INC gapped down today (bearish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
APPLE INC is currently 4.3% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect volume flowing into and out of AAPL.O at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on AAPL.O and have had this outlook for the last 72 periods. our momentum oscillator has set a new 14-period low while the security price has not. This is a bearish divergence.