“We have been told over and over by Wall Street, ‘cash is a drag on a company’s balance sheet.’ We are told cash needs to be spent to increase shareholder value via acquisition, buyback or dividend. Yet we never question it. We don’t even blink an eye and blindly agree,” Travis Lewis writes for Seeking Alpha. “If an acquisition works and increases shareholder value, that’s great. Trouble is, history shows us more than not, that acquisitions come at the expense of the shareholder.”
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“For a buyback example let’s look at Cisco. Since 2002, Cisco has spent $70.3B on a share repurchase program. The company has ~$26.4B in net cash and its market cap is $86B,” Lewis writes. “If Cisco had held on to its cash, it would equal at least $96.7B today. That’s much greater than its current market cap. Would Cisco be valued under its cash price today? Did Wall Street or Cisco really do what’s best for shareholder value? Would Cisco be one of the most valuable tech stocks if it had held on to its cash?”
Lewis writes, “Apple’s weakest fiscal quarter is Q2. The company added $6.1B in cash in FY11Q2. Let’s use this figure to see what its cash will be at the end of 2018. This way we have a worst case scenario. This assumes 0% growth rate from here on out… At the end of 2018, Apple will have $255B in cash/equivalents under our assumptions. Apple currently holds 21% of its market cap in cash/equivalents. If held constant, in 2018 Apple will have a market cap of $1.21 trillion.”
Lewis writes, “We need to re-think this theory that cash is a burden. It is actually one of the best ways to increase shareholder value. Either used as $1 for $1 gain or for strategic operations. The cash strategy Apple is using has never been tried before. Is it possible Apple has learned from others, and in order to fulfill its fiduciary responsibility, the company must keep building cash?”
Read more in the full article here.