Apple Stock - A Closer Look At Growth Going Forward

Apple stock has become ubiquitous in the world of financial markets. It seems like everyone owns a bit of it. And while it’s difficult to find passionate Apple bears, the stock still trades at a P/E ratio (19) less than that of the S&P 500 (22). Currently, Apple and Microsoft are the only US-listed companies with market caps exceeding $1 trillion.

The stock has been flying for over a decade, and with that in mind, it’d be reasonable to assume that the stock’s major growth phase is over, but it might be preparing for another leg up following the release of the new iPhone. On October 11th, 2019, the stock just gapped up and hit an all-time high of $235 on optimism about the iPhone 11 and as the tech sector sees inflows on hopes of positive global trade developments.

iPhone 11

Although Apple is attempting to shift its core business model away from selling phones and tablets, investors and analysts are reacting to the latest update on the handsets with optimism.

Apple continued to threaten the high-end camera market with the release of the iPhone Pro, featuring a professional-grade lens and additional sensors for capturing a wider field of view. The company seems to capitalize on the ‘micro-influencer’ trend, where an increasing amount of people are curating brands around themselves and their business and require high-quality camera equipment on-the-go.

Growing Service Segment

Apple has been slowly making the shift from a product business to a service business. This is epitomized by their expanding iCloud, Apple Music, App Store, Apple Pay, and Apple Care businesses, and their movement into the streaming and gaming businesses with their launch of Apple TV+.

Apple’s most recent quarterly filing shows significant revenue growth in its services segment, coincided with mostly flat product sales. Year-over-year, their third-quarter services sales have grown 11.2%, from $10.1 billion to $11.4 billion. This is while product revenue stayed shrunk by a bit over $600 million over the same period.

Technical Analysis

Apple stock was in a downtrend from September 2018 to the start of the new year, following a failed breakout to all-time highs. The start of the new year showed us signs of a trend reversal, as evidenced by the momentum the stock gained after bouncing off its new-year lows.

This break to all-time highs could be the signal of a new long-term uptrend, as evidenced by the breakout forming of the first higher high, and the higher lows in June and August 2019.

It’s anyone’s guess whether this breakout continues or if the stock will settle back into its base and slowly trend upwards. However, there are a few signs that can give us an indication of what might happen.

The first is the gap up that occurred on Oct 11. Statistical research conducted by technical analyst Adam H. Grimes tells us that most gaps in the equity markets fail, and are filled in later market sessions. Equity markets tend to be more mean-reverting than commodity or currency markets.

The next is that the market has exceeded a two standard deviation move in relation to it’s 20-day moving average. In a mega-cap stock like Apple, significant momentum and volume are required for continuation.

As you can see, even though the stock aggressively gapped up, today’s volume is right in line with its 50-day volume moving average.

Final Thoughts

Apple is a leading stock holding significant weights in the major indices. Its performance can serve as a trickle-down indicator for the rest of the market. The company’s recent positive developments could be a sign that this bull market isn’t over just yet.