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Apple Inc. (AAPL): Almost Every Investor is Misunderstanding This Simple Fact

Apple Inc. (NASDAQ:AAPL) is down more than 10% today, with the majority of those losses occurring in after-hours trading yesterday, after the company reported some uninspiring first quarter top-line numbers. Cupertino missed Wall Street’s revenue expectations, and also issued next-quarter guidance 5-10% below what most analysts are forecasting. Additionally, for those investors subscribing to the philosophy that earnings are a key driver of stock prices, they’ve likely been disappointed by EPS figures.

Apple Inc. (NASDAQ:AAPL)

At first glance, it appears that Apple’s earnings declined year-over-year in Q1, but when we do some simple arithmetic, this is simply not the case. If you’ll recall, Insider Monkey informed investors in December (see Many Apple Bears are Forgetting This) that it’s incorrect to compare AAPL’s Q1 FY2013 period with its Q1 FY2012 period.

It’s time to update our original analysis.

One year ago, Apple generated a first quarter EPS of $13.87. These earnings were accumulated over a period of 14 weeks.

In this past quarter, which Apple Inc. (NASDAQ:AAPL) reported yesterday, the company generated an EPS of $13.81. These earnings were accumulated over a period of 13 weeks.

A first grader could tell the difference between these figures, but apparently, this math is too difficult for today’s average financial journalist to perform. We’re not calling out one platform in particular. No, it appears that almost every armchair analyst misunderstood this simple 7-day difference.

So, to tackle this “complex math,” all we have to do is split up Apple Inc. (NASDAQ:AAPL)’s EPS figures into weekly averages.

In Q1 FY2012, Apple generated close to 99 cents in earnings per week over the 14-week period.

In Q1 FY2013, Apple generated $1.06 in earnings per week over the 13-week period.

This means, that despite the headlines mentioning that Apple Inc. (NASDAQ:AAPL) had “flat” or “slightly lower” EPS this past quarter, we can see that the company actually experienced an adjusted EPS growth of 7 percentage points, year over year.

Is it possible that many Apple investors who sold their shares yesterday were focusing on the company’s revenue numbers?


Is it also possible that some Cupertino bears were incorrectly assessing Apple Inc. (NASDAQ:AAPL)’s earnings, thinking that they had fallen flat compared to the previous year’s first quarter?

Unfortunately, yes.

So, now the rational question investors must ask themselves is: does a company that grew weekly earnings last quarter, and beat the Street’s estimates really deserve to be trading at its current multiples?

We’ll let you answer that, but it’s important to at least have the correct information when considering Apple Inc. (NASDAQ:AAPL)’s prospects moving forward. In today’s rough and tumble world of ‘write first, ask questions later’ journalism, though, it’s becoming increasingly difficult to do this.

For more coverage of finance-related truths, continue reading here at Insider Monkey:

Andrew Ross Sorkin is DEAD WRONG About Ackman’s JC Penney Loss

Yet Another Misunderstanding of Hedge Funds’ 13F Filings

Reporter Confuses a Very Simple Facebook-Zynga Report

Disclosure: I have no positions in any of the stocks mentioned above

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