Stock Market Comment: Apple's business defies pandemic

• Apple surpassed $2 trillion market capitalization

• Very good performance in the pandemic environment

• Potential iPhone 12 announcement in September?

• 4-for-1 stock split to be carried on August 28

• Share price reached all-time high above $500

Apple (AAPL.US) has been one of the most outstanding US stocks in recent weeks. Tech mega-cap has gained 19% month-to-date already and its market capitalization surpassed $2 trillion for the first time in history. In this commentary we will take a look at reasons behind Apple's recent outperformance as well as look at important events in the near future.

Solid fundamentals fuel stock gains

Apple has recovered from an early-year drop very quickly. Share price has hit a fresh all-time high in early mid-May after suffering an over 30% drop in February and March. Stimulus programmes aimed at supporting consumer spending as well as quick post-pandemic recovery in the key market (China) provided fuel for price gains. Apple confirmed its solid performance by showing a revenue growth in Q2 2020.

• iPhone revenue: +2% YoY

• Mac revenue: +22% YoY

• iPad revenue: +31% YoY

• Services revenue: +17% YoY

• New paid subscriptions: +35 million

Company generated higher sales in all major segments and booked strong subscriptions growth. Apple has over 550 million paid subscribers, making it the biggest subscription business in the world. Company plans to increase that number to above 600 million this year.

Apple has managed to increase sales in a difficult pandemic environment. However, the company's sales growth has been slowing in the past quarters. Source: Bloomberg, XTB

iPhone 12 in September?

Big number of subscribers and its continued growth provides Apple with a stable and easy-to-predict cash flow. However, we should keep in mind that Apple made its name by manufacturing high-profile devices, like smartphones. A new model range of iPhones is set to be released this year but the company warned that they will come later than usual. However, this announcement could have been aimed at lowering market expectations as Apple has been recently testing a YouTube live feed for an event scheduled Thursday, September 10. As Apple announced the new iPhone models in September around this date in previous years, rumours began to circulate saying that announcement of iPhone 12 may not be delayed after all.

Rally in Apple shares has outpaced revenue growth causing price-to-sales ratio for the company to surge. Note that at the height of 2007 stock market peak Apple was valued at a P/S of less than 6! Source: Bloomberg, XTB

Apple is a driver of current stock market rally

Due to its massive market capitalization, Apple has a noticeable impact on performance of many indices, like S&P 500 or Nasdaq. This became even more visible combined with recent steep share price gains. Taking a look at month-to-date data, one can see that Apple has gained 19%, S&P 500 rose 6.4% and Nasdaq jumped 9.8% so far in August. However, should we subtract all the contributions Apple had to gain in these two indices, S&P 500 would have increased around 5% while Nasdaq would have gained 7.1%.

Apple has also announced that it will carry a 4-on-1 stock split on Friday, August 28 after market closes. Market has welcomed the announcement sending Apple share price higher. Split itself does not have any impact on shareholders' wealth as the value of new shares received equals the value of old shares at the moment of a split. In theory, a split could create additional demand for Apple shares as lowering share price would make the stock more accessible to retail investors with small capital. 

Apple (AAPL.US) is trading near all-time highs. The stock pulled back to the $500 handle during the past two days but downward momentum seems to be easing. Key support to watch can be found at the lower limit of the Overbalance structure in the $474 area. Next week and a potential iPhone 12 announcement could be an important driver for the stock. Source: xStation5