Apple, Inc. Stock Earnings: Why This Metric Will Be Key

How much longer can this half-trillion dollar company continue to find ways to boost its bottom line earnings?

Jul 11, 2014 at 8:00AM

Apple (NASDAQ:AAPL) reports earnings on July 22, after market close. As usual, the event will be closely watched. While there will be a number of hot metrics to watch, one will tell the story of Apple stock better than any other: earnings growth. With arguably Apple's greatest challenge being its size, investors want to know whether or not the tech giant can still grow its business meaningfully.

Apple Campus

Rendering of the planned Apple Campus 2. The main building has 2.8 million square feet with room for 13,000 employees. Image source: Apple. 

Where is the top?
This is a question investors have been asking for a long time regarding Apple stock. As the world's most valuable publicly traded company, with a market capitalization that exceeds half a trillion dollars, the saying "what goes up must come down" plagues the stock. In fact, it's this simple notion that is arguably behind Apple's conservative price-to-earnings ratio of 16, trailing behind the S&P 500's ratio of 19.4. 

Some investors may have thought they were witnessing the top for Apple when its year-over-year revenue growth hit zero in the third quarter of 2013. The market was insanely bearish on the stock, with shares trading below a post-split $60 per share.

But since then, Apple investors have become increasingly confident that the company can continue to grow its business. While Apple's year-over-year revenue growth rates have improved, its earnings-per-share growth has improved even more. The improving earnings story has reinvigorated market interest in the stock. Shares have soared 60% in the past year.

AAPL Normalized Diluted EPS (Quarterly YoY Growth) Chart

AAPL Normalized Diluted EPS (Quarterly YoY Growth) data by YCharts

Consider Apple's most recent quarter. Apple's EPS grew by 15%, year over year. The growth stemmed from slight revenue growth, an aggressive share repurchase program, and favorable gross profit margin comps. This rate was the highest the company has reported in the last six quarters.

Will the growth continue in Q3?
That's the question investors will be looking to find out. While the consensus analyst estimate for Apple's earnings in Q3 is for 14% growth, last quarter Apple easily beat estimates, reporting EPS of a post-split $1.66 compared to estimates for $1.46.

Apple Logo Store Tmf

Upside surprise in Q3 is a possibility, too. Especially considering longtime Apple analyst Katy Huberty's projection for Q3 iPhone sales to come in 25% higher than the year-ago quarter. This, combined with the effects of share repurchases, could help Apple easily exceed last quarter's EPS growth of 15%.

While iPhone sales can't grow forever, Apple can continue to buy shares as long as it maintains its pricing power. And, fortunately for Apple investors, its pricing power isn't showing any signs of slipping.

Can Apple continue to grow EPS at meaningful levels for the long haul after all?

This small company may win big on Apple's next big product launch
Apple's so-called iWatch will almost undoubtedly shake up an entire industry. But one small company may benefit from the likely enormous adoption of these smart wearable devices more than Apple. Even better, its small stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, just click here!

Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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