“Chances are that a considerable share of that capital will be allocated to more share buybacks,” Cardenal writes. “If the business is fundamentally solid and the stock is priced at reasonable levels, then management is making a sound decision by investing the company’s capital in an asset with attractive expected returns, meaning the company’s own shares. Conversely, if the fundamentals are deteriorating and/or the stock is overpriced, then share buybacks are clearly destructive in terms of shareholder value.”
“Apple currently has a share buyback program which has been in place since October of 2012, and such program has delivered impressive results for shareholders over time,” Cardenal writes. “Apple is a money-making machine, and the stock is priced at valuation levels which are quite attractive from such a profitable business. For this reason, an enlarged share buyback sounds like a smart move to create shareholder value over time.”
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MacDailyNews Take: Smart capital allocation.