(Louis Basenese)Are you ready? The biggest earnings announcement of the week hits after the bell today.
I'm talking about none other than Apple's (Nasdaq: AAPL), the world's largest company and the market's most widely held stock.
Analysts expect Apple to report a 56% increase in quarterly profits to $9.96 per share. And sales are expected to jump 49% to $36.7 billion, according to Bloomberg data.
Of course, expectations mean nothing when it comes to Apple.
As The Wall Street Journal puts it, "The company has a history of under-predicting and blowing out the Street." That's no exaggeration, either.
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Take last quarter, for instance. Apple topped profit expectations by a whopping 36.5%. Meanwhile, the average company in the S&P 500 Index only beat expectations by 3.7%.
And over the last 25 quarters, Apple's only missed earnings expectations once, according to Bespoke Investment Group.
Given its history of surprising so strongly to the upside – and the stock's 11% pullback from its intraday high on April 10 – does that mean today represents a last-minute buying opportunity?
I wouldn't be so quick to pull the trigger. Here's why…
Even Apple Can't Defy the Golden Rule
In the 17th century, Swiss mathematician, Jacob Bernoulli, proved that a variable reverts to a mean over a large sample of results. Applied to stocks, Bernoulli's Law means that a company experiencing high earnings growth and a rapid rise in share price is destined to experience a slowdown, as the company grows ever larger.
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Don't believe it? Consider the track record of these previous titleholders of "The World's Largest Company"…
- In March 2000, Cisco Systems (Nasdaq: CSCO) hit a market capitalization of $557 billion. Fast-forward to today and its market cap is just $106 billion.
- In early 2002, Microsoft (Nasdaq: MSFT) ruled the world with a market cap of $276 billion. Today, it stands at $270 billion. So not counting dividends, shares have essentially treaded water for a decade.
- In 2005, General Electric (NYSE: GE) earned the top spot with a market cap of $370 billion.