AAPL: Calculate the ROI

April 22, 2014, 10:00 am ET, BY Thomas H. Kee Jr- Editor, Stock Traders Daily| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Traditional Apple investors want a stock that is going to move for them, they are used to eye-popping results, and they are used to much more support from new institutional buyers, but today's Apple is not the same as Apple of old.  The good news is, Apple has tested longer term support as that is defined in our real time trading report for Apple most recently, and so long as that is true we should expect a progression towards longer term resistance levels again too.

Ahead of earnings, shares of Apple (NASDAQ:AAPL) are interesting, but maybe not to the traditional Apple investor.  Minutes before I began to write this article I saw a headline cross from someone who seemed as if they were more like the Apple investors of old.  It went something like this, Apple is a double from here and I won't sell my stock until it reaches $1000.

As much as I appreciate reading conversations like that for their entertainment value, the truth is that Apple has not been growing EPS or revenue enough to warrant a move like that.  Revenue growth recently has fallen to levels almost unheard of given what we saw in years past from Apple.  EPS growth as it is expected to be reported on Wednesday is also expected to flat line with comparative results from the same quarter of last year, representing no earnings growth year over year either.

With that, expectations of a double in stock price from Apple are farfetched, unless something material happens.  Of course, the people that still have their golden handcuffs on are going to list a number of things that could propel the stock and earnings accordingly, but regardless of the introduction of an Apple TV, or of mobile payment technologies, both of which will probably eventually come, nothing can match the Smartphone revolution that Apple began and benefited from years ago.

That makes Apple a completely different company than what Apple investors of years past remember.  That does not make it a bad company; it simply makes it a different type of investment.  Luckily, Apple also has the ability to move quite aggressively, so it can also be a good trade from time to time, but even traders need to resist the temptation to trade this stock in the middle of its channel.

The current PE multiple for Apple is 13 times earnings, and although this does not seem rich when compared to the overall market multiple, when compared with the earnings growth for Apple this quarter and the lackluster revenue growth we have seen recently, it is probably very fair, and multiple expansion will not likely be realized unless some added catalyst prevails. 

In addition, according to our real time trading report for Apple the support level for Apple has slowly been deteriorating.  This is a concern because when stocks have sound footing support levels usually at least remain stable.  Stocks that have a positive underlying bias usually also have support levels that increase over time, but Apple is doing the opposite on a technical basis, and this is a concern.

For investors, the 2.3% dividend is a big positive, and the cash flow generated from operations provides solace to anyone buying this stock at 13 times earnings because eventually, barring any catastrophe, they will make their money back over the years.  In fact, using the dividend and the cash flow of current operations, but assuming no growth whatsoever going forward, we can easily calculate when an investor will be repaid and begin to make money on an investment in Apple.

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