Interestingly enough, it was earnings a year ago that sent Apple shares on a torrid run, rising 33 percent in the past 52 weeks as the company increased its stock repurchase program and stirred renewed optimism among investors about a refresh for its iPad and iPhone products.
But 2014 has not been kind to the tech giant. Shares have fallen 5 percent year-to-date and have badly trailed the market.
(Read: China is a driver, not a drag, for U.S. earnings in first qtr)
So will results change all that for Apple?
According to Tavis McCourt of Raymond James, there are three things investors will learn from Apple's earnings tonight.
First: Is Apple's business slowing, or is it declining? That may seem like semantics, but according to McCourt, it's a subtle but important distinction. "The guidance is for modest growth, and if they can achieve that, it'll be good for the stock," McCourt told Talking Numbers. "The risk is that this business is in slow decline because of the commoditization of high-end cell phones."
Second: Will margins stay healthy? Apple sells computers and smartphones, two of the lowest margin items around. But because they've built a better mouse trap, they are able to charge more for its products and create a business with gross margins that are the envy of the world. Despite increased competition in the smartphone space, McCourt doesn't see Apple's industry-leading margins coming down anytime soon. "The bet that Apple has made is a simple one. If you control the ecosystem and the operating system, you operate in a non-commoditized environment," McCourt said. In other words, Apple customers tend to stay Apple customers, and that helps with pricing power.
Third: Will we see a new product category this year? This is the biggest question investors have for Apple, and one that gets to the (unfair) knock on CEO Tim Cook that the company has lacked innovation since the passing of Steve Jobs in 2011. "Every year we get a new iPhone, and this year should be no different. My guess is that we get a bigger screen," McCourt said. "The other new product category is likely to be something in the wearables, whether it ends up being a watch or a fitness band. But that's a much harder opportunity for investors to quantify."
Raymond James & Associates makes a market in shares of the Apple Inc
Raymond James & Associates have an "outperform" rating and $550 price target on Apple Inc.