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Apple Earnings Preview: A Buying Opportunity?

By:Thomas Westwater

Investors may look past the company’s China woes and hold onto the stock for the long term

  • Apple will report earnings May 2, after market close.
  • The focus is on China as Apple looks to recalibrate amid slowing sales.
  • Apple IVR provides options traders hefty premium to trade earnings.

Apple (AAPL) is scheduled to report second-quarter fiscal earnings on Thursday, after market close. As of today, the iPhone maker was trading approximately 2.5% higher for the week, contrasting with Nasdaq’s loss.

Investors are buying Apple ahead of the earnings announcement as the stock comes off one-year lows. Still, AAPL is down about 10% year-to-date amid concerns about Chinese demand. Preliminary figures from the International Data Corporation (IDC) show its smartphone shipments fell 6.6% year-over-year in China, as competition from other phone makers dug into Apple’s market share.

Have investors overstated the broader impact on Apple and will the upcoming earnings substantiate that belief?

What are investors seeking?

Investors expect Apple to post earnings per share (EPS) of $1.51 on $90.4 billion in revenue. That would be down from EPS of $1.52 and revenue of $94.84 billion in Q2 2023. It would also be a drop from last quarter’s earnings per share (EPS) and revenue of $2.18 and $120 billion, respectively.

However, Apple has surprised consensus figures for both EPS and revenue in four of the last five earnings announcements. That said, if CEO Tim Cook manages to surprise the market with better-than-expected figures, the stock could rally and enable investors to look ahead to better days.

The market will want to hear how Apple is addressing the woes in China and will likely want to hear details about how it plans to reclaim the top spot in the world’s second-largest economy. What if Apple disappoints? There is a lingering thought in the market, a dogma even, that Apple is always a good long-term buy.

For those who subscribe, a pullback on a disappointing figure could be seen as a buying opportunity. After all, Apple has defied naysayers in the past, and while recent innovations haven't lead to substantial shifts in sentiment, the company continues to generate massive revenue streams compared with the majority of companies in the S&P 500.

Trading Apple earnings

For those looking to trade a position on the announcement itself, Apple options are trading with a healthy premium, mainly because of the recent pullback in the share price. The implied volatility rank (IVR) was at 75.5 as of today. The May 3 expiration shows an implied move of +/- 5.91 points. An iron condor with the short strikes just outside of that expected move relative to today’s share price at 165 and 180 provides a 65% probability of profit (POP) with a max profit of $77 and max loss of $173.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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