Apple Stock Buybacks a Disaster: Analyst
Over the weekend, Trip Chowdhry, a research analyst at Global Equities Research, said that Apple Inc. (NASDAQ:AAPL) CEO Tim Cook is doing exactly what Albert Einstein defined as insanity—doing the same thing over and over again and expecting different results. The consequences, Chowdhry predicts, could be dire for AAPL stock.
Apple stock has lost 31% of its market value, from hitting its all-time high of $134.00, last year to its 52-week low of $92.00 hit last week.
This dramatic nosedive caused the “iPhone” maker to cede its title as the world’s most valuable company to Alphabet Inc (NASDAQ:GOOG) seems to have made investors and analysts alike nervous.
Chowdhry came to his conclusion following last week’s quarterly conference call, in which CFO Luca Maestri said the company plans to remain “very active in the U.S. and international debt markets in 2016 in order to fund our [Apple’s] capital return activities.” (Source: “Apple CEO Tim Cook acts like he’s insane, analyst says,” MarketWatch, February 1, 2016.)
Given how badly Apple stock has performed relative to the broader market since the company started raising debt to pay out dividends and set up share buyback programs, Chowdhry suggests it would seem crazy that Maestri and Cook continue to make the same mistake.
Cook took up the helm of the technology giant in August 2011. A year later, surrendering to pressure from major investors including billionaire activist investor Carl Icahn, the Cupertino, California-based company paid out its first dividend in nearly 17 years.
Since then, Apple’s stock has gained two percent through Tuesday, while the S&P 500 has climbed more than 30% and the NASDAQ Composite has run up approximately 50%. During the same time, Chowdhry points out that Apple has spent $110 billion on share buybacks and $43.0 billion on dividends, while its debt has skyrocketed to $63.0 billion.
“Obviously, share buybacks and dividends are not working, and somehow the current CFO thinks that doing the same thing over and over again may generate different results,” Chowdhry said. (Source: “Apple CEO Tim Cook acts like he’s insane, analyst says,” MarketWatch, February 1, 2016.)
AAPL stock’s price-to-earnings (P/E) ratio has sunk to 10.33 as of last Friday, down from 15.52 in August 2012. Meanwhile, the P/E ratio for the S&P 500 has increased from 13.25 to 16.64. Chowdhry calculates that the potential shareholder value lost from the decline in Apple’s P/E multiple relative to the S&P 500’s is about $480 billion.
“Apple share buybacks have been a complete disaster,” Chowdhry concluded. (Source: Ibid.)