Apple shares hit new all-time intraday and closing highs

24 Comments

1. If Apple hadn’t recently bought back about 40 million shares, part of the recent $100 billion buyback program, it would be worth about $976 billion.

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   1. Mathematically share buybacks have Zero effect on market cap.. …

      This seems to be a very common misunderstanding.

      The only two factors effecting market cap:
      Earnings
      PE multiple ( psycological/perception factor )

      Buybacks do nothing for cap…. they help the stock price given a pe ).
      Reduced # shares=higher eps
      Increased # of shares = lower eps

      Imo, the misunderstanding/ confusion comes from EPS effect …..
      Lets follow the equations.. i think it will become clear.

      First and foremost before anything else :
      1) Market cap = PE X EARNINGS . Number of shares is irrelevant .
      But Also
      2)Market cap = Stock price x number of shares .
      3)Stock price = earnings / number of shares x PE. Or EPS /PE

      Substituting stock price in the 2nd equation.

      Market cap=( earnings/ number of share x PE ) / number of shares >>>. Number of shares cancel out in the equation. And we are back to
      Market cap= Earnings x PE

      Number of shares is irrelavant to market cap.

      Its EPS that is effected by number of shares

      EPS= Earnings / number of shares .
      So the more the number off shares .. the less earnings per share…. or the less number of shares the higher earnings per share ( for a given earning ).
      Basically same pie size but different slice sizes, depending on how many slices u cut the pie in . But at the end the pie is the same size,( pie is the cap )

      As Apple buys shares and retires them.. the number of shares decrease…. so the earnings per share ( eps ) increases. Resulting in higher stock price.

      But you have to keep in mind that eventhough the stock price is higher now, there are less shares
      Less shares x higher stock price = cap
      More shares x lower stock price = cap

      Buying stock back helps share price to go up… but has no effect on market cap directly. ( mathematically )

      For cap to go up… PE and Earnings have to go up.
      Number of shares , mathematically do not effect Earnings or PE .
      (Psychologically they may or may not )

      Buybacks wont mathematically help Apple cap to reach trillion faster.. but it will help share price…..a way of returning cash to shareholders. ( hopeing PE does not move lower )

      Hope this clarifies the issue .

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      1. Ps… if you at all took the time to read the post above and understand it…..and yet you decided to down vote it … ..please do yourself a favor and stay out of the stock market….. just my advice ..

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      2. I read it, but I would put it differently. The stock price is NOT earnings/number of shares. It is the amount of money for which you can buy or sell a single share of stock on an unconstrained market (like a stock exchange). That is driven exclusively by supply and demand.

         So, (1) A lesser number of shares means less supply but that only affects the price if the demand is not dropping at exactly the same rate as the change in supply. If demand is dropping at a slower rate or rising, the share price goes up. If demand is dropping at a faster rate than supply, the price will go down even if there are fewer shares.

         And (2) The demand for a stock is largely independent of corporate earnings. Demand is driven by a variety of factors. Current or past earnings are psychologically significant, but much less important than anticipated or guesstimated future earnings. If the current EPS were the only factor determining demand, every company would have exactly the same PE ratio. Particularly in Apple’s case, demand (and thus stock price) is often driven by irrational factors like trusting or hating the CEO or the latest rumors from the supply chain.

         However, your conclusion is basically sound, even if based on somewhat hinky math. Assuming that there is nothing reducing demand, buybacks help share price rise by reducing supply. If the price rise is in exact proportion to the reduction in the number of shares, it will not affect the market cap (number of shares x price of a share).

         It does, however, affect how high the price must rise before the market cap reaches a particular value (like $1 trillion). As the number of shares falls, the target price rises.

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         1. Hinky math?? …..lol. ( please point at it specifically and hopefully in math terms )

            It is simply aretmatic txuser ….. there is no personal conclusion there for it to be ‘my basically sound conclusion yet hinky’
            I did not invent how market cap is calculated. But some seem to be confused about it.. ( i believe you are too ) hence i put down the formula.
            I have seen posts people expecting a faster path to trillion through buy backs and i have seen posts showing concern that buybacks will hinder the path to one trillion.

            Pardon me but IF there is anything hinky here It is your argument ….. we are not discussing supply and demand and stock price..

            Most of what you wrote about ( and considered hinky about my post ) is coved by the effect of PE… which i clearly mention in my post. You may want to review again.

            I am strictly talking about effect of buybacks on market cap….Mathematically ! ( first word in my post )
            (Same as stock splits… the effect is not one of mathematical one… it is strictly a psycological effect. A dollor is a dollar is a dollar… Its is not worth more or less if its made of 2 50 cents..or if it is a dollar bill. It still buys the same at a given time)

            You seem to have ignored the PE parts of my post…..

         2. TXuser is a MASTER at IGNORING parts of posts he either cannot handle or deal with. You nailed him …

         3. The “hinkiness” is in your assumption that stock price is equal to earnings/number of shares. The math would be fine if that assumption were true. It isn’t. Share price is determined by market forces that may be completely unrelated to current earnings.

            It is true that share price = market cap/number of shares, but that is just a tautology like saying that the speed of a car in miles per hour = miles travelled/hours of driving time. You can directly change the share price (by altering supply or demand) and number of shares (by issuance or buybacks) but only indirectly change the market cap (by altering one of the two independent variables).

            You talk about the effects of PE as if that were an independent factor. Again, it is obviously true that the price to earnings ratio = price of a share/earnings per share, but that is just another tautology. The price is an independent variable, but PE is dependent on it, just as the distance travelled in a hour is dependent on the speed. You cannot directly change the PE ratio, only the earnings (by good or bad business practices) and the price of shares (supply and demand, again). Your argument seems to suggest that the price depends on the PE ratio when causation actually runs in the other direction.

         4. TX… im not suggesting anything.. its just Math . And pe is a psycological/perception factor . You seem to completly ignore that aspect of my posts! Again .
            In your analogy, if u insist to look at it that way…. ( i dont like the analogy a bit but ..just for argument’s sake )
            Pe is the speed. Pe = price/ earnings ….. Speed = Miles/houre .. if u trust your car and its abilities u can decide to push on the gas a bit more and go faster… covering more distance the ‘price’ in a given time.. or get where u want in less in time.
            Any way..
            Talking causation:
            Price is dependent on pe not the other way around. Stock price is derived from how many times the earnings/share the overall market is prepared to pay for the stock.
            All a company has, tangibly, is its earnings..( and psychologically some control over its narrative , one hopes )
            Market does not arbitrarily pick a price for a stock and then calculate the pe.. markets perception of the stock drives the pe that leads to stock price.
            Hence the skill of manipulators who can through manipulating narrative change the pe ..boosting or killing a stocks price with absolutly no change in the underlaying fundamentals of a company.

            Pe is a multiple .. thats all it is….. it is the result of the psychological/perception factors driving the overall market to pay x times more per earned $ of the company. ( psychological/perception becouse no one can be certain about the future… despite all analysis! … its based on whats believed will happen )
            The higher the trust and confidence in the companies future growth and prospects and stability the more ‘most individuals’ are willing to pay per earned dollor of the company. Its just a multiple… … in this case the multiple is called pe.. … … but it is just a multiple applied to earnings to get to the price. forget its called PE.. lets call it M .

            For example … MS and Amazon have high pe-s ( M) relative to Apple … why?.. becouse market believes in the sustainability and/or growth of their earnings way more than they do in Apples … and feels more comfortable with their narrative.

            That trust is reflected in the pe (M) … that M leads to the stock price.. Eps x M = Price.

            All that said ;
            Market cap is market cap..= Earnings x M ( M being pe.. the indicator of the perceived confidence level of the overall market )
            Number of shares is not a part of the equation..mathematicaly.
            Phycologicaly u can do whatever u desire to M … at the end it wil be Earnings and the overall perception of the collective that determines M , hence the stock price. Causation!

            Stock are not objects of passion TX .. they are monetary/finacial/ investment instruments.
            No one should buy stocks (at least imo) because they Love a piece of paper stamped with company symbol on it for it to have some arbitrary price ceiling…… they buy it as a value proposal… for financial benefits … the price of a stock has to have some perceived financial sense at the end of the day.
            If not approached this way.. one will easly be manipulated and taken to the cleaners. ( Unfortunately many do )

      3. “Hope this clarifies the issue”

         It does the opposite. You are confused.

         Market capitalization is *defined* as price per share x the number of diluted shares outstanding. Currently, that would be $191.83 x 4,915,138,000 = $942.871 billion

         I suggest you refer to wikipedia’s article on market capitalization.

         Assuming no change in share price, the more shares Apple retires through its buyback program, the lower Apple’s market capitalization will be.

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         1. Stay out if the market… Deasy
            Or try to comprehend my post..
            That’s all i can say..

            What you wrote and your confusion is addressed and explained in my post .. its math. Not magic or opinion.

2. Theoretically, this transaction is value-neutral. The assets (retained profits) used to purchase those 40M shares are reflected in a change in the share price. The market cap remains the same because the reduction in the number of AAPL outstanding is offset by a small increase in the price per share.

   In practice, the buybacks are executed over a series of transactions over an extended period of time. In addition, certain types of investors are attracted to stock buybacks as an indicator of management confidence in the performance of the company. So, it is possible for the market cap to change from this theoretically value-neutral transaction.

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   1. The buyback represents value returned to the shareholders. The market cap should reflect that asset transfer out of the corporation. The share price should not change, because the assets used to purchase those shares is roughly equivalent to the value of those shares on the open market.

      I apologize for the error. I can only plead old age in combination with the end of the workday.

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      1. The only variables market cap directly relates to or is derived from are

         Earnings
         PE multiple ( which reflects the psychological and perception factor)

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      2. See my comment above. I don’t think there is a direct (as opposed to psychological) link between earnings and market cap.

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3. Great news, and the MDN take, I don’t know I’d like to believe it but there will be those still screaming for hardware updates.

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   1. Yeah maybe they just haven’t sobered up yet.

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      1. What? They actually sober up? Say it ain’t so.

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   2. Welll market did punish a bit … at the start of the wwdc key notes aapl 164+……… at end 161+

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      1. Ooops.. my bad …correction.. at start was 163+. At end 161+

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         1. Yojimbo,

            Did you mean 193+ and 191+?

            Thank you also for your explanatory post above!

         2. Lol lol…
            Damn it has been a long day … stand corrected!

            Thank you Nsapap….
            🙂

         3. Oh that’s a bit of a relief that is went down a bit, regardless of the numbers. It’s a tradition long standing that Apple stock goes down in certain cycles.

   3. Yes, crybaby. The pro community has been SCREAMING for five years NOW. Something you casually DISS and don’t appreciate or care about. Talk about clueless …

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4. They’ll find a way to punish Apple. In a day or two.

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