What Has Happened to Apple Stock After Previous Rallies?
Recently, Apple’s share price rally and the stock’s record-high valuations have been key topics of conversation among investors – I have talked about the subject in more detail. Apple has risen a little over 90% in the past 12 months, which is just impressive. No wonder, shareholders must be feeling a bit uneasy about the quick climb to the top.
Today, I look at what has historically happened to the share price after it rallied at least as much as it has since mid-2019. The analysis may help to give investors somewhat of a benchmark against which they can set return expectations going forward.
When Apple reached escape velocity
Below are the three other times since the beginning of this century when Apple shares traded higher by more than 90% over the prior 12 months – i.e. in a clearly bullish, sharply up-trending fashion.
- Early 2004 to mid-2006: this two-year long period marked a turnaround in Apple’s Mac business. About 4.6 million Apple computers were sold in 2001, but the number dropped sharply to 3.1 million in 2002. The Cupertino company was clearly losing the market to Windows-based computers. The rebound started when unit sales in 2005 grew 38% over prior year levels on the back of the iMac and the Mac Mini.
- Mid-2007 to the 2008 Great Recession: this year-long period was one of the most memorable of Apple’s history. In 2007, Steve Jobs introduced the very first iPhone. The communications industry had been revolutionized.
- End of 2008 Great Recession to mid-2010: Apple’s stock got a lift from broad market forces. As the economy recovered from the Great Recession, Apple added fuel to the fire by inventing the tablet as a new product category in 2010. Shares rallied strongly, starting in 2009.
What happens after a strong rally?
Historically, once shares shoot to the moon, they do not necessarily come crashing down very quickly. In other words, Apple stock has often trended higher for several months before finally correcting.
Since the start of 2000, Apple has been on a 90%-plus rally like the current one about 15% of the time – i.e. nearly two months per year, on average. Below is a histogram that shows how shares performed in the 12 months following each rallying day.
Pick any given trading day in the past two decades when Apple had been up at least 90% over the previous 12 months. Historically, the 12-month returns following those days have been, on average, very good: 47.5%. In other words, only because shares were up strongly did not mean that they were doomed to underperform.
This must be at least a little comforting for current Apple shareholders.
The important question
Of course, the past does not always repeat. Only because Apple stock has trended higher for long before does not mean that it will again going forward.
The important question, in my view: is the current rally consistent with the business fundamentals today? Notice that sustainable spikes in the past were only possible as a result of very unique circumstances: the turnaround in a very important business, the introduction of a very popular product, or the recovery off a deep recession.
In my opinion, (1) Apple’s gradual transition to a services and software company, (2) the introduction of high-growth product categories like the Watch and AirPods and/or (3) the 5G upgrade cycle might, combined or in isolation, justify extreme bullishness. But I am curious to hear what readers have to say about it.
Does Apple’s business fundamentals support current strength in the stock price? Leave your opinion in the comments section below.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)