Historically, buybacks haven't been very successful. Apple is a relatively high priced stock. Would you devote all your money to AAPL at $510? The cash Apple holds today offers the company staying power and flexibility. They should invest better than 0% interest to be sure. But buying purely its own stock makes returns more volatile for shareholders. There is also a better than 50% chance it simply destroys good cash with nothing to show for it. Because Apple without the cash must produce same earnings as before. If not, the enhanced EPS is toast _AND_ you have no Fort Knox of money for the company to fall back on.
So today's AAPL shares would not necesssarily be worth more in a buyback scenario than they are now. Buybacks have gone wrong plenty of times before.
STUPID buybacks have failed. Sure. But intelligent buybacks generally produce value.
It all comes down to evaluating the situation. If your PE is 100, a buyback doesn't make as much sense as it does for a PE at 10. If you're financially healthy, a buyback makes more sense than if you're struggling. If you have to choose between buyback and investing in R&D, then a buyback is a horrible idea. OTOH, if you have plenty of cash to invest in R&D and buying businesses and STILL have more than you need, then it can be a wise use of funds.
In short, anyone saying that buybacks are good or bad in general is a fool. Obviously, there have been a lot of buybacks that never should have happened. But there are also buybacks that have been very successful for the investors - and since Apple falls into the 'good' category in all of the above criteria, its chances of success are very high.
I am well aware of the theoretical basis for buybacks. 50% was my guess at the buybacks that are unadvisable in retrospect, because they boost share prices less than cash value -- sometimes not at all.
That's not a relevant comparison at all. Even if 90% of buybacks were a failure, one wouldn't assume that Apple's will be a failure. An intelligent investor would evaluate them and determine WHY they failed and then see if Apple has any of the signs that are likely to lead to failure. Most buybacks fail because of extremely high PE, attempts to hide financial weakness, and feeble attempts to prop up a stock with no intrinsic value. Apple has none of those things. One can't assume that because the average buyback 'failed' (even if that were true) that Apple's would.
About PE, I would expect Dell's PE is much higher than Apple, because their prospect for earnings _growth percentage_ is much higher than Apple. If they fix things, earnings could go 10x higher. Not possible with Apple.
ROTFLMAO. By that standard, my local Mom and Pop grocery store should be worth more than Walmart because it has more room for growth.
Evaluation of the businesses indicates that Dell is a disaster:
- Declining sales and profits over an extended time
- No differentiation at all
- Competitive disadvantage due to higher costs than some competitors
- Declining customer satisfaction
- Perception as an inferior brand
- No innovation over the past 20 years
Sure, if Dell were to turn into Apple, their sales would skyrocket. But there's no plausible scenario where they will re-engineer themselves into a dynamic, profitable, growing company.
Now that takes the cake. You say DELL has a brighter future than Apple? Are you serious?
Apple is generating 40-50B of free cash flows a year. They have 150B in cash. Unless they are planning on making a huge 100M acquistion in the near future there is no reason to hoard over 200B in cash.
Exactly. So do you really think Apple can generate 400-500B per year in cash? Are _you_ serious?
Dell today makes 1 billion per year. If they really do great work, they might get it to 10 billion per year. Maybe even more.
So yeah... guy... what I said was right... and that's why Dell would have a higher P/E ratio today than Apple. They have some prospect for profit growth percentage. Apple has barely any. It's simple math really. Thanks for your interest.
Comments
STUPID buybacks have failed. Sure. But intelligent buybacks generally produce value.
It all comes down to evaluating the situation. If your PE is 100, a buyback doesn't make as much sense as it does for a PE at 10. If you're financially healthy, a buyback makes more sense than if you're struggling. If you have to choose between buyback and investing in R&D, then a buyback is a horrible idea. OTOH, if you have plenty of cash to invest in R&D and buying businesses and STILL have more than you need, then it can be a wise use of funds.
In short, anyone saying that buybacks are good or bad in general is a fool. Obviously, there have been a lot of buybacks that never should have happened. But there are also buybacks that have been very successful for the investors - and since Apple falls into the 'good' category in all of the above criteria, its chances of success are very high.
That's not a relevant comparison at all. Even if 90% of buybacks were a failure, one wouldn't assume that Apple's will be a failure. An intelligent investor would evaluate them and determine WHY they failed and then see if Apple has any of the signs that are likely to lead to failure. Most buybacks fail because of extremely high PE, attempts to hide financial weakness, and feeble attempts to prop up a stock with no intrinsic value. Apple has none of those things. One can't assume that because the average buyback 'failed' (even if that were true) that Apple's would.
ROTFLMAO. By that standard, my local Mom and Pop grocery store should be worth more than Walmart because it has more room for growth.
Evaluation of the businesses indicates that Dell is a disaster:
- Declining sales and profits over an extended time
- No differentiation at all
- Competitive disadvantage due to higher costs than some competitors
- Declining customer satisfaction
- Perception as an inferior brand
- No innovation over the past 20 years
Sure, if Dell were to turn into Apple, their sales would skyrocket. But there's no plausible scenario where they will re-engineer themselves into a dynamic, profitable, growing company.
Quote:
Originally Posted by sog35
Now that takes the cake. You say DELL has a brighter future than Apple? Are you serious?
Apple is generating 40-50B of free cash flows a year. They have 150B in cash. Unless they are planning on making a huge 100M acquistion in the near future there is no reason to hoard over 200B in cash.
Exactly. So do you really think Apple can generate 400-500B per year in cash? Are _you_ serious?
Dell today makes 1 billion per year. If they really do great work, they might get it to 10 billion per year. Maybe even more.
So yeah... guy... what I said was right... and that's why Dell would have a higher P/E ratio today than Apple. They have some prospect for profit growth percentage. Apple has barely any. It's simple math really. Thanks for your interest.
Originally Posted by bwik
Dell today makes 1 billion per year. If they really do great work, they might get it to 10 billion per year. Maybe even more.
I'd like to take this opportunity to remind you that you're talking about Dell here. DELL. That Dell.