by winterc1
Apple has one of the weirdest financial statements in the stock market, with PBR=45 and PER=30. This means the company’s yearly profit is greater than the equity it holds. In fact, despite being one of the most profitable company in the world, Apple’s equity has decreased from $140B (Dec. 2017) to $60B. Why? They’ve spent ~$90B on stock buyback and ~$10B on dividend per year (less before 2022). This is good if you are a short-term owner of the stock as the company is basically an ATM that gives back all of its profit to the shareholders. However, is this good in the long-term?
They are buying their stock back at PER of 30, which means 3.3% yield. The treasury yield is >4.5% and they are issuing new bonds at >5% (www.bloomberg.com/news/articles/2023-05-08/apple-tapping-us-high-grade-bond-market-for-debt-in-five-parts?embedded-checkout=true). So for their stock buyback to make sense, they need to show very good growth over next few years. However, the company has shown negative growth for nearly a year and I see much more obstacles to their growth such as: deglobalization, EU’s Digital Market Act, saturation of smartphone industry, not much presence in generative AI market. If they do not show significant growth, their resources should have been spent at 1) not rolling over debts at the high rates, 2) acquisitions, 3) R&D, 4) just dividends.
Because of these reasons, if I have to bet, I would bet their stock buyback will decrease next year. However, Apple has some upsides: low market share in many regions like India, increase in service charges (although this is what DMA seemed to be aimed against), some hidden project like Apple Car. However, I believe Apple’s main profit-maker (significantly greater margin on Iphone compared to other smartphones) is fully saturated and the company is at a junction where they need to spend their resources at making new revolutionary products and not at stock buybacks.
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