It is now less than a week until Apple results are released to the market and it is fair to say the shares have enjoyed a huge upgrade. The shares are up 9% this year so far, 31% in three months and 53% over the past six months. The shares currently stand at around $318 giving the company a market capitalisation of $1.4 trillion!
Analysts upgrading forecasts
Analysts have recently been upgrading their forecasts with the highest price target now $400 and the lowest $280. At this moment in time there is certainly more upside momentum with regards to analyst forecasts than there is downside. However, after this monumental run in the share price some analysts are now taking a step back awaiting the forthcoming figures and forward guidance.
Interestingly, a number of analysts now believe that in the longer term Apple is undervalued as the “magnitude of the 5G upgrade cycle” has been underestimated. Noises from China suggest that suppliers of the company’s leading iPhone products are extremely busy and demand is strong. There are also high hopes for the company’s AirPods and enthusiasm about the expanding services division. All it all, if analysts are correct then maybe, just maybe, investors have previously underestimated the long-term value of Apple.
What does 5G mean for Apple?
History shows us that upgrades in mobile phone networks have had a monumental impact on phone/service providers. In simple terms, there is the potential to push the whole Apple client base onto the next level of service, i.e. 5G, which will require new products to access this groundbreaking technology. It will obviously take some time to switch existing customers to 5G, no doubt there will be some teething problems but yes, the potential is huge.
It was interesting to see that some analysts have recently visited Asia to see how iPhone suppliers and Apple partners in general are trading. The initial feedback from a number of analysts suggests that things are perhaps better than many had expected and demand for the new services division is rumoured to be beating current projections.
Is it better to travel than arrive?
There is an old saying in the stock market “is it better to travel than arrive” and this is one of those occasions where this may well be correct. In effect this means that enjoying the journey, in this case an upward momentum in the Apple share price, prior to arriving at results day. The idea is that on results day the company would need to deliver on ever improving market expectations. If the results were in line with enhanced expectations then you could argue the share price is fully valued. However, if we hear anything remotely downbeat/negative from the company, this would give investors a perfect reason to cash in their chips.
Summary
Historically, although perhaps not as much in recent times, Apple has tended to do extremely well when it comes to PR and encouraging analysts to be more positive. The company also has a reputation for preventing uncontrolled leaks into the public domain ahead of announcement such as quarterly results. The fact that the shares have increased dramatically ahead of the forthcoming results does tend to indicate a more managed approach to analyst expectations and what the company is likely to deliver. Time will tell but expectations are now extremely high with regards to Apple and even the merest of disappointment could prompt a significant bout of profit-taking.