Every time earnings season rolls around, one of the first words on the minds of investors is Apple (NASDAQ:AAPL). As the world’s most valuable company, Apple’s ability to generate strong revenue is intimately connected with underlying consumer strength. Big ticket items from Apple are more difficult for consumers to afford when the economy is struggling — and this is why Apple is often viewed as a leading indicator of what is likely to happen in the stock market as a whole.
For this reason, most of the financial media will be looking in this direction when Apple releases its quarterly earnings report on Jan. 27th. So, what can investors expect as we head into this release? Is this a good time to buy Apple stock? Which factors are likely to support the outlook for strong earnings results at the company? Here, we will look at some potential answers for these questions.
Will History Repeat Itself?
Since the release of its original iPhone product, Apple has consistently beaten analyst estimates in its quarterly earnings reports. Because of this, it has almost become a market rule that investors should buy AAPL stock before the report is made public. Of course, there is no guarantee that this will be true in all cases. But when we look at some of the underlying positives that were seen during the previous quarter, it starts to become more likely that we will see another strong report from the tech giant.
First on this list is the release of its latest product innovations, the iPhone 6 and the iPhone 6 Plus products. These offerings garnered a significant amount of consumer attention as the company finally completed steps to increase the screen sizes on its most closely-watched devices. This helped to erase some of the consistent criticism suggesting that Apple was behind the game relatively to some of its competitors. Consumer sales for the iPhone 6 devices far exceeded expectations for the 2014 holiday season — and this will almost certainly support the company’s earnings outlook for the quarter.
Second is the broad strength that has been seen in the economy as a whole. The US unemployment rate is currently at its lowest levels since the financial collapse and this has helped consumer confidence to its highest levels in recent memory. This supports the outlook for big ticket items and makes it much easier for consumers to buy fashionable products like the iPhone and iPad.
The third supportive factor can be found in Apple’s ability to maintain its high margins. Few companies in the tech space are able to command such high prices while efficiently (and cheaply) attaining the resources need in production. All indicators point to this continuing for 2014 as a whole, and this will help drive revenue results for the next earnings report.
All of these factors suggest Apple will produce another stellar report on Jan. 27th. This means that there is relatively low risk establishing long positions in AAPL stock in the days leading up the release. If history is any indication, strong profits are likely to follow.