AAPL May Be Setting Itself for Liftoff

  • AAPL.us

Daily Chart

The chart below shows Apple's (AAPL) daily chart. We have included two Bollinger Bands to assess market sentiment. After a brutal selldown during January, AAPL is now on the border of its bullish zone, between the upper blue and red bands. If it moves into this region, it is a bullish development. The longer the stock stays in this region, the stronger the odds for bullish appreciation, significantly if the Bollinger Bands expand on volatility. Since Apple released its Q1 2022 earnings after the bell on 27 January, it is worth noting that the stock has been moving powerfully on a relative basis. It appreciated upwards from the bear zone, between the lower blue and red bands. Below we break down some of the financials, highlighting a solid first quarter for its 2022 fiscal year.

AAPL's Quarterly Gross Margins

Source: www.koyfin.com

The above column chart shows five consecutive quarters of total revenue (blue), cost of revenue (orange), and gross profit (gray). The yellow line is the gross margin. While certainly moving northeastward, gross margins declined between Q3-Q4 2021. The main culprit was a higher cost of revenues, which was most likely attributable to supply chain disruptions. However, there is a significant increase in the latest results. These boosts suggest that the supply chain disruptions have singificantly improved, bringing production costs down. However, the true standout between Q4'21-Q1'22 was the exceptional jump in revenue to $123.95bn ($83.36bn).

AAPL's Quarterly Operating Margins

Source: www.koyfin.com

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This kickup in revenue has done wonders for AAPL's operating margins. Q1'22 did show a 12% increase in operating expenses, including SG&A and R&D. However, the yellow line chart above shows the operating margin shooting up from 29% to 33%, indicating a significantly improved operation over the quarter.

AAPL's ROIC vs Cost of Capital

Source: www.koyfin.com

AAPL's return on invested capital (ROIC) for Q1'22 makes a statement. When comparing it against the company's cost of capital (WACC), AAPL has added significant value to its operations. The yellow line is the difference between its ROIC (blue column) and WACC (orange column). AAPL's value creation line has been in double digits over the last five quarters. However, it was declining over Q1'21-Q4'21. Q1'22 value creation has improved significantly, jumping 10% to 23% (13%). AAPL CEO Tim Cook said, " overall, we do see an improvement in the March quarter in terms of the constraints going down versus what they were in the December quarter." (www.koyfin.com). The supply chain improvement implies further improvement in ROIC vs. WACC. We will carefully monitor the price relative to its bullish area.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.


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