Why Apple's Stock Is Ready to Rebound

(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of AAPL.)

Apple Inc.'s (AAPL) stock has plunged 18% since reaching an intraday high of around $233.50 on October 3. But technical analysis suggests the shares may be long overdue for a rebound of 9%. 

The shares of Apple plunged after the company issued weaker than expected revenue guidance for the fiscal first quarter at the beginning of November. Additionally, the company noted it would no longer provide investors with iPhone unit sales going forward. Investors did not react well to the news, causing a further decline in the stock. As a result of the weak guidance, analysts have reduced their earnings and revenue estimates for future years. 

AAPL data by YCharts

A Rebound

Apple's stock has risen in a long-term uptrend since 2016 and has recently found technical support at $186. Now the stock is approaching technical resistance at $195. Should the stock rise above that resistance, it has a path to rise to $209, an increase of 9% from its current price around $191. Additionally, the relative strength index hit an oversold level at 30, suggests the stock is oversold and due for a rebound. The last time the stock had an oversold level was in February. 

Cutting Estimates

Following the weak revenue guidance, analysts have reduced their estimates for revenue in 2019, 2020 and 2021. Analysts now forecast revenue growth in 2019 of 5% down from 6%. Additionally, analysts have lowered their earnings growth to 13% from 16% in late October in 2019. 

AAPL EPS Estimates for Next Fiscal Year data by YCharts

Fairly Valued

The steep decline in the stock has resulted in the 2020 PE ratio falling to 12.6. That is in the middle of the stock's historical trading range since 2015, meaning that the stock may be fairly valued at current levels. 

Despite the reduction in the valuation and the sharp declines, the stock may continue to see a heightened level of volatility. That is because investors will continue to digest the latest quarterly results and recent speculation around slowing iPhone sales. It makes any rally suspect until there is clarity from the company about iPhone unit growth and a turn in investor sentiment. 

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.