Can Apple shine once again?

Customers at an Apple store in Toronto.

Wall Street is looking to Apple Inc's quarterly results on Tuesday to settle the debate over whether the stock's recent sell-off is a blip or an extended pullback.

If sales of iPhones and iPads blow past the market's expectations, that could assuage concerns that Apple's growth momentum is slowing. Such worries have caused the stock to fall 13 per cent in the last two weeks.

But if the results disappoint, that will fuel fears of a slowdown in sales of its flagship products and about whether the world's most valuable technology company can keep launching hit devices. On Tuesday, Apple's stock was hovering around $560, off a record intraday level of $644 on April 10.

Analysts expect earnings of $10.04 a share on revenue of $36.8 billion in the second quarter ended in March, which implies sales growth of about 50 per cent from the year-ago quarter, according to Thomson Reuters I/B/E/S.

Here are potential scenarios for Apple's stock activity after the company reports earnings after the market closes on Tuesday:

BLOWOUT QUARTER

By blowing past Wall Street expectations quarter after quarter, Apple has created a very high bar for itself. The market is conditioned for a big surprise, especially since investors are wondering if this is a good time to buy Apple shares as they are below $600.

Trades in the options market ahead of the earnings suggest that investors expect Apple shares to jump or fall by about 7.15 per cent following the earnings. This would be a much larger movement than Apple's average post-earnings stock move of about 4.25 per cent in the past four quarters.

The stock will rise if Apple manages to sell more than analysts' consensus forecast of about 30 million-plus iPhones and 13 million iPads. Gross margins of about 43 per cent or higher could also boost investor optimism. Despite the fact Apple's major wireless carrier partner, AT&T, reported lower-than-expected iPhone activations, Wall Street analysts argue that sales of both the smartphone and the new iPad were strong in international markets.

AT&T reported iPhone activations of 4.3 million in the first quarter, down 43 per cent from 7.6 million the previous quarter. But the carrier's activations typically drop significantly as a percentage of iPhone sales in the quarters after a new version is rolled out, said Brian White, analyst with Topeka Capital Markets.

"Due to the decline in US iPhone activations after a launch and the ramp of international markets, we believe it is difficult for investors to read much into either AT&T or Verizon's iPhone activations to estimate total iPhone shipments for this March quarter."

IPHONE DISAPPOINTS, SHARES SLIDE

Sales of the iPhone, which accounted for about half of Apple's revenue last quarter - is the key number investors will be watching. Any dissatisfaction there will weigh heavily on its stock, which has been mired in a two-week decline after quadrupling over the past 2-1/2 years.

Weak iPhone numbers could cause more cautious investors to reevaluate their positions and cash in on some of their holdings. Peter Misek, analyst with Jefferies, adjusted his iPhone estimates after the lower-then-expected phone activations at AT&T, saying that did not bode well for Apple.

"Instead of 32 million iPhone shipments in (the current quarter) we now believe 28 million-30 million is more likely," he said.

The last time Apple missed iPhone sales forecasts was in the September quarter, which executives attributed to consumers holding off until the new iPhone 4S hit store shelves. "My take is very simple: what goes up must come down, and finally a little sanity entered investors minds," said Dan Nathan, a co-founder of RiskReversal.com.

"It is no coincidence that the top in the stock coincided with herd-like behavior of Wall Street analysts tripping over each other to raise their price targets in the name in early, mid April."