Apple’s stock and earnings don’t go hand in hand

With Apple’s earnings announcement just hours away, investors, analysts, traders, and consumers alike are waiting with bated breath for what experts anticipate will be record receipts.

Independent analysts are a little bit more bullish than the affiliated analysts. The independent analysts expect earnings per share (EPS) of $12.01 on revenue of $43.14 billion. The institutional analysts expect EPS of $10.19 on $39.23 billion in revenue. Both are massive numbers that exceed any quarterly revenue that Apple has ever had.

But in the stock market, a company’s success rarely tells the whole story. In fact, it can be misleading. That’s why many new-age traders, myself included, have adopted a mathematical and technical approach to looking at the stock market. Rather than risk emotional missteps, we monitor price movement and stock charts — a by-the-numbers tactic that removes bias from predictions.

aapl chart Apples stock and earnings dont go hand in hand

The stock market sell-off of 2007-2009 bears out this cautionary approach. During that period, Apple released its original iPhone, followed by the iPhone 3G, the iPod touch, the MacBook Air, and a variety of updates to their Mac line. They were seeing record earnings quarter after quarter, not missing a single beat, yet the stock dropped from roughly $202 to $78 in that period. Why? Because stocks react to people, not analysts.

Today Apple will come out and post its most profitable quarter ever. Of this I’m all but certain. They’ll likely report record iPhone sales, and the company’s Mac and tablet lines probably enjoyed similar success. But that doesn’t mean Apple’s stock will move up.

Apple’s stock hinges on how that news is received by shareholders like you and me, not on quarterly successes. And an enthusiastic reaction isn’t a foregone conclusion. Some may look at Apple’s tally and think, wow, this is even better than I expected. Others may shrug, their expectations too high.

And there’s certainly a precedent for that kind of reception. Last quarter (Q3 2011), in fact. Apple came out and reported another record quarter, yet they missed “the street,” industry-speak for falling short of analysts’ expectations. The end result was a 5 percent hit in the market the following day.

Don’t get me wrong, I’m not predicting deja vu, and I’m not here to give stock advice. I won’t tell you that Apple’s going to the moon or that they’re due for a plunge. But what I will say is that Apple will react the way Apple’s always reacted––the way we all collectively feel.

So, for those of you eagerly awaiting Apple’s Q4 2011 numbers with the expectation of a monster of a quarter, I think you’re likely right. But for the people expecting Apple’s stock to shadow those figures, going up or down in predictable fashion, brace yourself, because that mentality will bring you pain, more often than not.

Image Source: Dahlstroms

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