14 DAY TRIAL // CMC Markets, a provider of financial spreadbetting, CFD and foreign exchange, says many traders are talking about whether AAPL stock is now in a bubble, mainly because of Apple's rally from near $350.00/share last November to well over $600.00/share earlier this month.
Senior Market Analyst at CMC Markets Canada, Colin Cieszynski explains that there are fundamental and technical indicators that generated conflicting signals about whether Apple is in a bubble.
“From November 25th through April 9th, Apple shares gained 74.9%,” said Cieszynski. “Over the same time frame, the Dow Industrials went up 15.1%. The company also has blasted through the high end of a channel and the chart has gone parabolic or nearly vertical.”
As such, Cieszynski believes that “Apple is probably in a bubble and vulnerable. In contrast, fundamental indicators suggest that the stock could still have room to run for a while.”
The CMC Markets report includes the following indicators, each with its own description:
Apple's weighting in the NASDAQ 100 has jumped from 15% to 19% in recent months, but it remains below the 20% level it was at in late 2010. Alarm bells could be triggered, were this to rise into the 25-30% range in the coming months.
Apple's current Price to Earnings (P/E) Ratio has climbed up toward 18 but still remains low relative to most of the last decade.
Companies with a higher growth rate can support a higher P/E ratio. With 1 being considered average for the PEG ratio and 2-3 sending out warning signals, Apple’s current 0.3 ratio suggests considerable upside remains possible.
CMC Markets is not convinced that this is a speed bump, nor does the firm believe 100% that this is a bubble about to burst. The answer lies in Apple’s April 24 earnings report, according to Cieszynski.
Cieszynski added that “While a positive result could send the shares substantially higher over time, a miss could accelerate the correction that already appears to be underway.”
“A return to Apple’s longer-term trend could take the shares back toward the $400-500 range pretty easily. Based on current trading, whether Apple next move either above $620 or below $580 could give a strong indication of whether the bulls or bears prevail for the moment,” he said.
Apple is hours away from disclosing the financial results for FY 2012 Q2.