Rohit Chhatwal for InvestorPlace:
Apple stock has seen a massive swing in the last four quarters. In the quarter ending June 2018, the price increased from $166 to $187. In the next quarter, there was a further increase in price to $227. Cumulatively, these two quarters showed a price jump of 37%.
One of the key reasons behind this movement could be the amount dedicated to cash buybacks in these quarters… Investors should consider the impact of buybacks on short-term price movement to find an ideal entry point.
In the past few weeks, Apple stock dipped to less than $175. If the trade war between the U.S. and China escalates further, Apple would face significant headwinds… Despite this threat, Apple stock has surged in the last few days to over $185. Again, one of the main reasons could be a higher buyback pace… Besides trade tensions, Apple stock is significantly dependent on the pace of buybacks in the near term. Investors should closely follow future buyback announcement to find an ideal entry point in Apple stock.
MacDailyNews Take: The sheer size of Apple’s buyback program makes it difficult for some (most?) to get their heads around. Apple buybacks, or lack thereof, can massively impact the company’s share price. When they laid off the buybacks after warning for the holiday quarter, the shares dipped precipitously. When Apple resumed buybacks, the shares recovered nicely.
It doesn’t quite make sense to me why a company should be valuable based on buybacks when they could be using that cash to actually increase revenue and profits. Apple isn’t getting any special value in terms of P/E value with those buybacks. Apple is still a laggard stock when compared to Microsoft and Amazon. The buybacks certainly aren’t making Apple stock less volatile when compared to other major tech stocks. In this case, I’m not complaining, it’s just that I would think Apple could be using that money to get into cloud services which might go a long way to stop the stock from being so flaky. Look how strong Microsoft is without using lots of financial gimmicks. Microsoft’s revenue and profits are much lower than Apple’s and yet big investors are all going for Microsoft for the prospects of growth. Apple doesn’t seem to have any major growth prospects as far as Wall Street is concerned.
Apple is still going to be negatively affected by declining iPhone sales even if it doesn’t report iPhone sales. Buybacks are not a substitute for declining iPhone sales because of revenue and profit losses. Apple needs to spend money to find an actual substitute for those revenue and profit losses and a cloud business would be the easiest way to do it if Wall Street believes a cloud business is an unlimited growth business. Anyway, that’s just my opinion.