- Analysts are increasingly bullish on Apple stock with the stock receiving several upgrades over the past few months.
- Apple short interest has dropped significantly in the latest reporting cycle.
- Will Apple stock rise higher, driven by the tailwinds of changing investor sentiment?
Apple Inc. (NASDAQ:AAPL) stock has had a roller coaster ride in 2016. The stock started the year at around the $105 level and fell all the way to $90 by mid-may, a huge 15% fall in a little over 3 months. While the fall was painful, the rise of Apple stock has been just as spectacular. The stock closed the last trading session at $117.55, a 30%+ gain from its lows earlier in the year. The rally in the stock price was split into two parts. While the investment discussions hovered around the theme of attractive valuations up to the $100 level, the strength of the iPhone 7 sales has been the driving force for Apple stock over the last month and a half. Is Apple stock still an attractive buy following the 30%+ rally? While it could be tempting to take profits here, the stock could move higher driven by tailwinds of bullish sentiment around the stock.
Analysts Are Increasingly Bullish On Apple Stock
Wall Street analyst consensus pegs the value of Apple stock at $127.6, implying an upside of 8% from the last closing price. The analyst consensus is up from a low of $123 in July 2016. While the quantum of change in the average analyst price target might not be much, noteworthy has been the change in the direction of the consensus. The analyst consensus price target for Apple stock had dropped for 7 straight months, from a peak of $149 in Dec 2015 to a low of $123 in July. The small uptick, in the analyst consensus price target, over the last couple of months, assumes a greater importance in this context.
Another important measure of analyst opinion is the number of upgrades/downgrades a stock receives on Wall street. Wall Street upgrades have been coming thick and fast for Apple in the past few months. The number of Apple stock upgrades outnumbered the number the downgrades by a ratio of nearly 4:1 in the last 6 months. Apple stock received 82 Wall street upgrades (since May 2016), while the number of downgrades stood at 22. To put things in perspective, Apple stock received a total of only 60 upgrades over 13 months from April 2015-April 2016. The number of downgrades for the period came in at 303, outnumbering the upgrades 5:1. The recent upgrade/downgrade trend is a clear indication of the growing bullishness surrounding Apple stock on Wall Street.
Out of 48 analysts covering Apple stock, 41 analysts rate the stock at 'Buy' or 'Outperform' while 2 analysts rate it at 'Underperform' or 'Sell'. The other 5 Analysts currently have a hold rating on the stock. With over 85% of the analysts currently positive about Apple stock and also given the upgrade/downgrade trend, it is reasonable to conclude that Wall Street is bullish on the future of Apple stock.
Declining short interest
Short Interest is the number of shares which have been sold short but are yet to be covered or closed out. Investors resort to this in order to benefit from a falling stock price. Short interest is an important measure of investor sentiment as it provides insight into the proportion of investors who expect the price of the stock to fall. Rising short interest is a bearish indicator as it means that a growing number of investors expect the stock price to decline. The reverse (falling short interest) represents a bullish indicator.
Apple saw a significant decline in short interest in the last reporting cycle (Sep end). The short interest stood at 54.716 M shares at the end of September compared to 60.135M shares short sold at the end of the previous reporting cycle on September 15. The latest reading represented a 9% decline from the mid-September print. It is clear that short sellers are closing their positions as reports emerge of the strong sales of iPhone 7, which could help Apple to a bumper quarterly result. It will, therefore, be interesting to watch the short interest data heading into Apple Inc.'s upcoming earnings report.
Apple stock has had a roller coaster of a ride in 2015, swinging to a 15% YTD loss in May and following that with a 30% uptick to the current levels. Given the muted performance of Apple stock, investors could be tempted to exit following the recent rally. However, given the increasingly bullish sentiment Apple stock has been enjoying among analysts and investors alike, the rally could continue higher. The stock is also trading above its key 50 day and 20 day moving averages. Hence, selling Apple stock now could be a premature exit. Investors should probably wait for the stock to breach the 50-period SMA, at 110.8, in order to be sure that the rally in Apple stock drawing to a close.
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