Why Apple won’t have a $1 trillion market capitalization any time soon

“With two consecutive blowout quarters, a market capitalization of $750 billion and a forward P/E ratio under 12 minus cash, many think a $1 trillion valuation for Apple is possible within the year,” Brian Nichols writes for Seeking Alpha. “After all, it seems inevitable, and while I believe Apple will one day be a trillion-dollar company, I do think it will be several years down the road.”

“Despite its stock being nearly 27% higher since September 18, 2012, Apple’s market capitalization has only increased 11.5%. The reason is because Apple has rapidly reduced its shares outstanding during this span via buybacks to the tune of 13%,” Nichols writes. “That’s why Apple’s stock has outperformed its market cap by nearly 100%, reflecting the market’s attempt to apply a higher value to Apple and reflect its very significant fundamental improvements.”

“At today’s level Apple looks very attractive and thanks to the company’s willingness to keep buying back stock at record amounts, investors should feel confident that Apple’s stock will continue to outperform the market regardless of market capitalization growth. Apple is essentially handing investors stock gains with its large buybacks, keeping a potential psychological limit in the distance, and all the while accumulating even more cash to both reinvest in the business and fund larger buybacks in the future,” Nichols writes. “Apple’s buybacks are a great thing for investors, even if it prolongs expectations for Apple to soon become the first ever trillion-dollar company.”

Much more in the full article – check out the chart – here.

MacDailyNews Take: Not to mention also handing investors dividends along the way.

20 Comments

    1. it’s simple. . . market cap is the current price of the stock times the number of outstanding shares. Simply put, if you have 100 shares at $10, your market cap is $1000. Buy back 20 shares, there are only 80 shares outstanding and your stock goes up to $12, your market cap may have gone up by 20% but your market cap went down to $960. So this analyst is pointing out that aggressive stock buy backs counters any gains in stock prices. In fact, much of the gain in the value of the stock may be reflective of the few stock shares available on the market to be purchased. i.e. The law of supply and demand will naturally force the market price of the stock up.

        1. You don’t know whose shares they are buying. They buy on the open market at market prices. It will be which ever are available. . . but it will be large blocks. They cannot buy yours unless you are willing to sell.

      1. I think you meant, this analyst is pointing out that aggressive stock buy backs counter any gains in –market cap– even while the stock price rises.

        1. Not exactly. . . it prevents any gains in market cap by limiting the number of outstanding shares as the multiplier of the share value. Higher share value, but fewer stock shares. Therefore, I would use the word “ameliorate” not “counter”. Counter implies the purpose of the strategy is to prevent the market cap from rising. That is not the purpose of the buybacks. By using “counter” you are putting the cart before the horse. Market cap is a function of the two multiplied together. . .control either of the two, and the result is affected. However, the result is essentially the same.

    2. Apple is not buying back “its shares.” Apple is buying back shares of the company that are owned by investors.

      A corporation can issue new shares to raise money for expansion or for employee incentives/bonuses. When a corporation issues new shares, each outstanding share represents a slightly smaller piece of the corporation – ownership dilution. However, when a corporation has more money than it needs for R&D and its ongoing business activities, it can use that money to repurchase shares, which slightly increases the amount of ownership represented by each remaining outstanding share.

      The corporation does not “buy itself.” Nor can it somehow “go private” via stock buybacks. The corporation is simply using stockholder money to repurchase and retire shares. But the effect on corporate market value and shareholder return is often greater than the funds actually used to execute the repurchase plan.

  1. I’m too lazy to look it up but who was the guy in 2012 who was so BULLISH on Apple that many people bet the farm with him? Then everyone brought out the pitchforks on him when the stock tanked later that year.

    I told my wife to buy right after the new iPhone came out that year as she had some extra cash. She bought right at the peak and then it tanked. Glad she didn’t come after me with a pitchfork. Just glad she was smart enough to hold onto them.

    Apple = Buy & HOLD

      1. That’s the one! He said Apple was going to $1000 (pre-split) and it’s over $900 now so it’s just taken longer than he expected.

        From a Philip Elmer-DeWitt BI article in May 2013:

        Independent Apple analyst Andy Zaky lost $10.6 million of investors’ money thanks to Apple’s crash, Philip Elmer-DeWitt at Fortune reports.

        He lost even more money for people who listened to his Apple analysis, but didn’t invest directly with him, says Elmer-DeWitt.

        Read more: http://www.businessinsider.com/apple-analyst-andy-zaky-lost-investor-money-2013-3#ixzz3YvJJiX8z

        1. Deep down Andy is a technical trader. He looks at Apple’s fundamentals but mostly ignores the.

          Technical trading, when it works, is only valid for about 3 days. Beyond that it has zero capacity to foresee changes in direction.

          AAPL went down first because its Net Income growth flattened, then went negative, during that period Technical trading CANNOT see that, so, in my estimation is no more effective than a Ouija board.

      2. Origin of article: Seeking Alpha.

        With a single exception (Alex Cho), Seeking Alpha is a cesspool of wannabe “analysts”, whose only skill is to write trash and pass it off as intelligent discourse.

  2. As an Apple shareholder, I’m not holding my breath until Apple reaches some record number market cap. I never bought it for that reason. I only want Apple to remain a solid investment for years. I don’t want to happen to Apple what happened to Microsoft or those other stocks that broke records and then fell like a stone. I’d rather Apple stay at $800 billion for a year than reach $1T for just a week and then plummet. I’m not greedy. I’ll take whatever dividends I can get and get on with my life. These people almost make it seem like if Apple doesn’t reach $1T then the company is doomed, as usual.

  3. I reinvest my dividend right back into shares – so effectively I am buying back x percent every quarter too …..

    Not much for me, maybe 10-11 shares but add in others if doing same and it subtracts the number of available shares floating in the market … Which helps lessen supply and increase price!

    1. Ditto. Over the last few year added about 10% to my holdings with dividend reinvestment.
      I recently tried selling 25% of my stock at 130 and bought back at 126. Added another 5 shares. Not much considering the stress that I might have made the wrong move.

      1. I’ve had good success in the past selling Apple about this time of year and buying back around July, which is usually an annual low. No guarantee that it will work now, but it might be worth considering.

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