Apple Stock Up 4% in July – Time to Buy AAPL Stock?

Apple shares are up 4% so far in July while the price action shows that the stock has surged for six consecutive days on the back of the positive momentum that the stock market as a whole is seeing.

Coincidentally, or perhaps not that much, the S&P 500 rose for seven consecutive days before today’s downtick, which reinforces the view that Apple’s latest uptick could be the result of a market-wide bullish sentiment, especially since there haven’t been any material events that have changed the financial outlook for the iPhone maker.

Is this a good time to buy Apple following this latest bull run? Or is the price action already sending signals of a short-term exhaustion in the uptrend? The following article takes a closer look at the stock’s current technical setup along with diving into Apple’s fundamentals to possibly forecast what could come next for this tech stock.

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Apple stock – technical analysis

This latest 6-day surge in Apple’s share price has pushed momentum oscillators to overbought territory already, which is an indication that the uptrend might be reaching a tipping point.

However, this doesn’t necessarily mean that Apple’s rally will stop there, as an acceleration in the momentum a stock is seeing is often an indication of a change in the market’s sentiment toward the issue.

According to the chart above, the stock’s short-term moving averages have just posted a golden cross – a bullish setup that could support further upside for Apple. Meanwhile, momentum readings for the stock are at their highest levels in months, with the RSI jumping o a 9-month high while the MACD is also surging to its highest level since April this year.

The combination of elevated trading volumes, high momentum readings, and the break of a long-dated downtrend reinforce a mid-term bullish outlook for Apple. However, it would be plausible to expect a pullback in the short-term that could actually provide a more decent entry point for those who would like to take a long position on the stock.

Based on the trend line and resistance drawings shown in the chart, a short-term target for Apple could be set at $145 while a mid-term target would see the stock moving to $155 per share for a 7% potential upside.

That said, Apple’s quarterly earnings will soon come out and those events tend to radically modify the technical outlook of a stock. Therefore, any short-term positions taken on AAPL stock should be either closed or hedged in anticipation of a potential spike in the stock’s volatility following the release of the earnings report.

Apple stock – fundamental analysis

Apple’s sales have been growing steadily since 2016, moving from $215.64 billion back then to $274.52 billion by the end of last year at a 6.2% CAGR. On the other hand, revenues during the first quarter of 2021 accelerated significantly compared to a year ago, partially due to a lower comparative baseline.

Analysts are expecting to see Apple sales surging to $354.66 billion this year, which results in a 29.2% jump compared to a year ago and a significant improvement in revenue growth compared to the firm’s historical performance.

Based on those numbers, Apple is being valued at 6.6 times its forecasted sales for 2021. Valuation multiples for Apple have remained well above their historical averages and have surged to their currently elevated levels since the pandemic stroked.

These elevated P/S ratios put a lot of pressure on Apple to keep delivering above-average revenue growth in the following quarters, which means that any setbacks that affect the company’s top-line results could dramatically impact the stock price.

From the perspective of profitability, Apple has seen its earnings per share surge from $2.09 per share back in 2016 to $3.31 per share by the end of 2020 at a 12.2% CAGR. Meanwhile, analysts are expecting to see earnings per share jumping nearly 57.6% to $5.17 this year as a result of higher sales.

However, from 2022 and forward, profits are expected to grow at a much slower rate of 2% to 5% based on data from Koyfin, which again shows how overly optimistic the current valuation multiples are.

At its current price of $141.7, Apple is trading at 27 times its forecasted EPS for 2021. Even though that multiple seems more than justified based on an expected 57% jump in the firm’s bottom-line profitability, it is not that attractive when compared to the company’s historical profitability growth as it would result in a price-to-earnings-to-growth ratio (PEG) of 2.2, which points to Apple being either a fairly valued stock or a possibly overvalued issue.

At the moment, the upside potential remains appealing for a short-term trade but from the standpoint of long-term investing Apple seems to offer a much less attractive upside potential based on its seemingly stretched valuation multiples.

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