Apple (NASDAQ:AAPL) has finally decided to ahead with the stock buyback plan after the stock value slumped post the holiday season. The Wall Street Journal has said that the CEO of the company, Tim Cook has revealed that the company indeed bought back an astonishing $14 billion worth of stock two weeks after the earnings release in the last quarter. This step was taken after the stocks went hurtling below $500 mark last quarter. For the record, Apple had generated $22.7 billion revenue in operating cash during the December quarter. Prior to this, the company had spent a whopping $40 billion in order to return the capital to the investors. That the company’s management thought about taking such a major buyback forward is what that has taken everyone in surprise.
What many an investor is surprised about is actually not that surprising. I am talking about the company’s enterprise value has gone down to just $300 million. Compared to that, Google is in a better position with an EV of over $340 billion. The company roughly has a cash balance of $48 billion. The net worth of Apple’s cash balance and marketable securities is much more. That roughly comes to around $160 billion. This apart, the company also has a market cap of around $460 billion. In spite of having much smaller cash balance than Apple, Google has an effectively larger EV than iPhone maker. This is a serious concern for the company.
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- AAPL 15-Year Financial Data
- The intrinsic value of AAPL
- Peter Lynch Chart of AAPL
Return On Investment:
So what if Apple is not performing as expected, the company still offers brilliant returns on investment. This is because of the large repurchases that the company undergoes every now and then. This, as a matter of fact, provides solid dividends on capital investment. With the stock yielding nearly 8% prior to this accelerated stock buyback, investors get to enjoy the best of everything: one of the best corporations with one of the highest yields in the market.
More than being rewarding to the investors, there is one more fact that makes Apple one of the best pick for the season. The tech giant is extremely cheap, trading at 8x forward earnings. This coupled with large buybacks, will definitely boost the company’s earnings. I’m sure the investors will be heaving a sigh after this. Apple has sufficiently large capital base which makes enables it to trade at a sufficiently higher level than the current market subpar multiples. It is just a matter of time before Apple again starts trading at $500 level.