Apple’s Big Beat: What’s Next for the Stock?

We’re still reeling from Apple’s stunning and historic earnings release after the market close.   The company beat expectations by over 34 percent, posting $7.79 per share and up an unbelievable 121.9 percent y/y and 21.7 percent q/q.  Revenues grew 81.5 percent y/y and 15.5 percent q/q.  The company now sits on over $76 BN of cash and long-term securities, which equates to around $83 per share.  We read somewhere that Apple could almost purchase RIMM with just the increase in its cash position this quarter.

We found it interesting listening to traders after the release.  Many were itching to sell the pop in after hours, which saw the stock trade over $400.  Normally after such a nice short-term run into the release we would agree.  But when the company blows away earnings in such a stunning manner we look to history to get a sense of how the stock trades post earnings.

The most similar post crash quarterly result we could find was the Q2 2010 release, where the company beat estimates by almost 36 percent.  The table below shows the earnings and revenue growth for that quarter were not even in the same zip code as today’s announcement, however.



Furthermore, in the following charts we compare how the stock traded prior to the two relevant quarterly results.   Apple has been consolidating for almost the entire year and was only a couple percent above its February $365 intraday high going into today’s earnings announcement.

What’s next?   We’re not certain, but if past is prologue, the stock could trade up to almost $420 in the next few days before consolidating its gains and preparing for the next leg up into, what many expect, the September release of the iPhone 5.

Can’t you just hear the prayers of those hoping for a pullback so they can get long and longer?  Other than the health of Steve Jobs, the only thing holding the stock back, in our opinion, is that numbers are so good they just can’t be believed.   If Apple earns $8.38 this quarter, the stock, at $395, trades for a multiple of 13.6. That is hard to believe given the company’s growth rate.   Stay tuned.


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