Wall Street is not paying much attention to the financials. They want to see growth. Apple can’t show growth anymore, but the financials are strong. Apple took away volume data from Wall Street, so Wall Street doesn’t know how to value AAPL anymore.
Personally, I think it’s bonkers that AMZN is valued so incredibly high by Wall Street, and I think that thenprofit that Apple makes must be factored in its valuation. However, it’s also true that Tim Cook has no clue what to do with the hundreds of billions that Apple has accumulated. All Tim knows what to do is to blow the profits on buybacks. Maybe if Apple buys back enough shares, I can live on the dividend alone and not care about the share price anymore.
Wall Street is not paying much attention to the financials. They want to see growth. Apple can’t show growth anymore, but the financials are strong. Apple took away volume data from Wall Street, so Wall Street doesn’t know how to value AAPL anymore.
Personally, I think it’s bonkers that AMZN is valued so incredibly high by Wall Street, and I think that thenprofit that Apple makes must be factored in its valuation. However, it’s also true that Tim Cook has no clue what to do with the hundreds of billions that Apple has accumulated. All Tim knows what to do is to blow the profits on buybacks. Maybe if Apple buys back enough shares, I can live on the dividend alone and not care about the share price anymore.
1) Since when did the bean counters of Wall Street understand how to value AAPL? Answer: Never. 2) Share buy-backs are NOT blowing profit. Under the right circumstances (modest PE ratio and steady earnings) they are a great way to maintain and enhance shareholder value. ‘Momentum’ investors will never get that and that’s OK because, frankly, those guys are fools with too much of other people’s money to play craps with.
1) Since when did the bean counters of Wall Street understand how to value AAPL? Answer: Never. 2) Share buy-backs are NOT blowing profit. Under the right circumstances (modest PE ratio and steady earnings) they are a great way to maintain and enhance shareholder value. ‘Momentum’ investors will never get that and that’s OK because, frankly, those guys are fools with too much of other people’s money to play craps with.
Exactly. Think about it this way: Mr. Market gives zero value for Apple's cash because it's considered "dead money". That's just a fact.
Think of Apple as a pie (And yes, it's an Apple pie....). In buying back shares, Apple is basically removing the number of slices the pie is cut up into. Any given slice/share that remains owns a larger percentage of the pie. Apple has already bought back about 30% of the company. When (not if) it buys back 50%, then every person who held onto their AAPL since back when the buybacks started will suddenly have 2X the percentage interest in Apple.
Now, that's not "free" money. Apple's real value (and not the fake value Mr. Market uses) is comprised in part of it's cash. Spending it to buy it's own stock basically depletes Apple of part of it's "ready cash". So this is really just converting one kind of value for another kind. But with less shares for a given "float", all things being equal, the price of the shares should go up by about the amount of the invested cash, assuming a steady overall value. It actually goes up more than that because the overall value of Apple keeps increasing, to the point where it is far beyond what most people ever expected it to be.
However, some pundits say that buying back shares doesn't impact the price of AAPL. Well, it's an opinion. But is it true? Reducing the share count with buybacks juices EPS. It turns out that, for AAPL, the change in EPS is practically linear over the last 10-11 years, and may even be accelerating a little bit over the last year. More importantly, if you check out the change in price of Apple over the last 10-11 years and look at the change in EPS (Earnings Per Share) over that same time period, then the two are generally paralleling one another. (Also running in parallel is RPS [Revenue Per Share], but that's another story....) Therefore, we can say with some conviction that, over a long stretch of time, EPS is what's driving the stock price.
Finally, and this is the fun part, selloffs in AAPL like the present one mean that Apple can get much better bang per buck, and thus can buy back more stock for a given "investment".
For long term investors, the bottom line is that they can pretty much ignore the ups of AAPL, and buy during the many AAPL downs. Their AAPL investment is not only safe but continually growing at a decent clip. That's pretty great for old folks like me that are living on their fixed incomes.
Mark Gurman has IN THE PAST not been known for breathless, phony reporting. I guess he’s willing to put his own reputation in tatters with clickbait journalism now.
Mark Gurman has IN THE PAST not been known for breathless, phony reporting. I guess he’s willing to put his own reputation in tatters with clickbait journalism now.
Comments
Personally, I think it’s bonkers that AMZN is valued so incredibly high by Wall Street, and I think that thenprofit that Apple makes must be factored in its valuation. However, it’s also true that Tim Cook has no clue what to do with the hundreds of billions that Apple has accumulated. All Tim knows what to do is to blow the profits on buybacks. Maybe if Apple buys back enough shares, I can live on the dividend alone and not care about the share price anymore.
2) Share buy-backs are NOT blowing profit. Under the right circumstances (modest PE ratio and steady earnings) they are a great way to maintain and enhance shareholder value. ‘Momentum’ investors will never get that and that’s OK because, frankly, those guys are fools with too much of other people’s money to play craps with.
Think of Apple as a pie (And yes, it's an Apple pie....). In buying back shares, Apple is basically removing the number of slices the pie is cut up into. Any given slice/share that remains owns a larger percentage of the pie. Apple has already bought back about 30% of the company. When (not if) it buys back 50%, then every person who held onto their AAPL since back when the buybacks started will suddenly have 2X the percentage interest in Apple.
Now, that's not "free" money. Apple's real value (and not the fake value Mr. Market uses) is comprised in part of it's cash. Spending it to buy it's own stock basically depletes Apple of part of it's "ready cash". So this is really just converting one kind of value for another kind. But with less shares for a given "float", all things being equal, the price of the shares should go up by about the amount of the invested cash, assuming a steady overall value. It actually goes up more than that because the overall value of Apple keeps increasing, to the point where it is far beyond what most people ever expected it to be.
However, some pundits say that buying back shares doesn't impact the price of AAPL. Well, it's an opinion. But is it true? Reducing the share count with buybacks juices EPS. It turns out that, for AAPL, the change in EPS is practically linear over the last 10-11 years, and may even be accelerating a little bit over the last year. More importantly, if you check out the change in price of Apple over the last 10-11 years and look at the change in EPS (Earnings Per Share) over that same time period, then the two are generally paralleling one another. (Also running in parallel is RPS [Revenue Per Share], but that's another story....) Therefore, we can say with some conviction that, over a long stretch of time, EPS is what's driving the stock price.
Finally, and this is the fun part, selloffs in AAPL like the present one mean that Apple can get much better bang per buck, and thus can buy back more stock for a given "investment".
For long term investors, the bottom line is that they can pretty much ignore the ups of AAPL, and buy during the many AAPL downs. Their AAPL investment is not only safe but continually growing at a decent clip. That's pretty great for old folks like me that are living on their fixed incomes.