Apple Inc. (NASDAQ:AAPL): Are Analysts’ Earnings Forecast Signalling Trouble Ahead?

Apple Inc.’s (NASDAQ:AAPL) released its most recent earnings update in September 2018, which indicated that the company benefited from a strong tailwind, eventuating to a double-digit earnings growth of 23%. Below, I’ve laid out key growth figures on how market analysts predict Apple’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.

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Market analysts’ prospects for this coming year seems pessimistic, with earnings reducing by -6.9%. In the next couple of years, earnings are predicted to continue to be below today’s level, with a fall of -2.8% in 2021, eventually reaching US$58b in 2022.

NASDAQGS:AAPL Future Profit January 31st 19
NASDAQGS:AAPL Future Profit January 31st 19

While it is informative knowing the rate of growth each year relative to today’s value, it may be more insightful estimating the rate at which the business is growing on average every year. The benefit of this method is that it ignores near term flucuations and accounts for the overarching direction of Apple’s earnings trajectory over time, which may be more relevant for long term investors. To compute this rate, I’ve inserted a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is -0.4%. This means, we can expect Apple will chip away at a rate of -0.4% every year for the next couple of years.

Next Steps:

For Apple, I’ve compiled three pertinent factors you should further examine:

  1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Valuation: What is AAPL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AAPL is currently mispriced by the market.
  3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of AAPL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.