Got a tip for us?
Let us know
Become a MacRumors Supporter for $50/year with no ads, ability to filter front page stories, and private forums.
Apple Reportedly Preparing to Announce Larger Dividend or Stock Buyback
- Thread starter MacRumors
- Start date
- Sort by reaction score
There's a perception that price alone tells you everything you need to know, but we know this isn't true. All arbitrage arises from a difference in perceived value, particularly across different markets.
Think of it this way: There's a market for the security of a given company, there's a market for their products and there's a market for the assets that generate their cash flows through the sale of their product (working capital).
One of these markets tends to speculate a lot about value and is riddled with information gaps... The securities exchanges are not completely efficient markets where all players have possession of the same intrinsic and extrinsic facts at the same time.
Apple, not unlike several tech companies I can think of, is beset by tremendous speculation... It's as if the masses aren't aware of anything but five or six tech companies. Wall Streeters, of course, love this, because they like the irrational liquidity that speculation drives. Liquidity is actually the enemy of value.
So, what you get is a security that was teetering on a significant amount of downward pressure because institutional buyers that priced it correctly were waiting to dump those shares on speculators who thought "Hmm, $600 still 'sounds' cheap because the stock will go to $1000 just like they're telling me and P/E doesn't look bad."
That was the kind of thinking that got homebuyers in trouble... Believing that the market is right and, secondly, that some "investments" will never go down in value. But speculators often find themselves left holding the bag.
I'll never understand why people like to make things harder for themselves than they need to be. Too many times I've been approached by those who think that the value method is flawed, and yet they can never answer why it is better to pay $5 for an asset worth $1 than to pay 60 cents for the same asset, all else being equal.
If the industry multiple is 16 times earnings... doesn't it stand to reason if all securities in that sector were overpriced, and sold by market makers who have analysts on one side of the house it is to FOOL you into believing their cockamamie P/E-based valuations so they can dump shares to you that they acquired under a different valuation strategy (read: a sound one), then that entire sector may be overpriced?
At its current price, AAPL is still trading at too narrow a margin below its intrinsic value... and probably at a premium to what I term operating value. So that doesn't give me a very comfortable feeling (a "wide margin of safety") about it before even diving into the fuzzier aspects of what are the long term pipeline prospects.
Chupa - likewise - I hear ya. Of the ones I mentioned, the China Mobile launch would be a financial game changer. Those negotiations have languished for years now and the iPhone "magic" is being replicated by competitors - weakening Apple's negotiating power with China Mobile. That, along with a Pandora like service suggest to me that Tim does not have the deal closing skills that are so needed.
True industry game changers do not happen every few years - fully agree. However, how long does it take to get a new "wow" factor Mac Pro out? Apple is under tremendous criticism for not knowing what to do with all the cash they have - how difficult is it to increase the dividend to an amount that halts the burgeoning cash on their balance sheet?
Professional still photo editing = Photoshop or CaptureOne Pro. Why not have some of that cash deployed to release ApertureX and get back in the pro game. For that matter, stick a few engineers on iWeb and get back to supporting the Apple ecosystem. There are more examples but, from your post, you know the situation very well.
Giving Tim more time is starting to feel like dealing with an addict - just give them another hit so they can get in better shape towards recovery.
----------
Yes - two dividend payments received.
True industry game changers do not happen every few years - fully agree. However, how long does it take to get a new "wow" factor Mac Pro out? Apple is under tremendous criticism for not knowing what to do with all the cash they have - how difficult is it to increase the dividend to an amount that halts the burgeoning cash on their balance sheet?
Professional still photo editing = Photoshop or CaptureOne Pro. Why not have some of that cash deployed to release ApertureX and get back in the pro game. For that matter, stick a few engineers on iWeb and get back to supporting the Apple ecosystem. There are more examples but, from your post, you know the situation very well.
Giving Tim more time is starting to feel like dealing with an addict - just give them another hit so they can get in better shape towards recovery.
----------
Yes - two dividend payments received.
I have. The last dividend was paid on February 14: $2.65 for every share of AAPL stock you owned on February 7.
Before that they paid the same dividend on 11/15/2012 and 08/16/2012.
How does that work? If Apple buy a load of their own shares now the price will automatically go up using the old supply & demand rule right? Then what? Do they sell the shares later at a higher price causing the shares to fall again or just hang on to them? Surely if the bankers think $420 if fair value for Apple shares given what they think will happen to the Apple business/revenues going forward then won't the shares just drift back down again over time once the Apple buy back has stopped? Seems an awful waste of money to me on Apple's part to me.
Surely they would be better using that cash to invest in projects that will increase sales/revenues in which case the shares will go up anyway. That means making big acquisitions that will add to the bottom line - like buying Adobe. They have billions sitting in offshore accounts, why not use that to buy up component suppliers so they are not reliant on the likes of Samsung. Buy Sharp, buy SanDisk, buy AMD, etc, etc so they have total control over their supply chain like Samsung does.
I'm curious how this benefits the individual investor? Can you enlighten me? (No sarcasm - I really am curious.)
Oh please. Even at $700, it was priced (P/E-wise) more like a non-growth company. It was hardly priced like a high-flying company. You wanna see overvalued? Check AMZN.
Amen.
It's crazy just how undervalued/unappreciated AAPL has been historically, even at its peak. And current prices seem to indicate an extreme amount of either ignorance or willful spite.
AAPL has never been able to catch a break.
Why not pre-announce..?
One thing that I don't understand.
For a product like iPhone or iPad, yes, it is not good to pre-announce, as it will affect the current model sales, and people will decide to wait before they upgrade.
But, if there are things coming up in new markets, like say, an iWatch or iTV, I see no harm in pre-announcing.. If not the exact features, atleast that they are working on one targeting a release this year. Infact, it will do more good than harm.. Atleast, I won't go and buy a Samsung Smart TV in the next few months
Same for the IOS. If there are really good features, no harm in releasing a teaser...!
One thing that I don't understand.
For a product like iPhone or iPad, yes, it is not good to pre-announce, as it will affect the current model sales, and people will decide to wait before they upgrade.
But, if there are things coming up in new markets, like say, an iWatch or iTV, I see no harm in pre-announcing.. If not the exact features, atleast that they are working on one targeting a release this year. Infact, it will do more good than harm.. Atleast, I won't go and buy a Samsung Smart TV in the next few months
Same for the IOS. If there are really good features, no harm in releasing a teaser...!
Oh please. Even at $700, it was priced (P/E-wise) more like a non-growth company. It was hardly priced like a high-flying company. You wanna see overvalued? Check AMZN.
low P/E doesn't mean it's cheap, that's ignorant. you know nothing about valuation based on P/E. if that were the case, why not just buy a bunch of stocks with low P/Es? Just look at Apple's market cap growth and you'll see it's been considered a growth stock.
You're right, low P/E doesn't necessarily make a stock cheap.
Yet you admit Apple is a growth stock. A growth stock with a low P/E typically means it's cheap (particularly with Apple's cash horde).
Low P/E stock are typically non-growth or low-growth stocks.
you're wrong again. P/E has nothing to do with value. P/E is basically a sentiment indicator. Apple is a growth stock because their earnings have been growing a lot over the last few years. It's lower now because expectations for future growth are sliding. Just because Apple has a low P/E doesn't mean it's undervalued at all; you're looking at the ratio completely wrong. Netflix, Amazon, and FB have really high P/E ratios because the market expects plenty of future growth. Apple has been at a reasonable P/E because growth has always been realized each year.
Of course it does. Price to Earnings is a valuation measurement.
Also true.
Not realized, but overachieved. AAPL value has never fully reflected that. Look at their P/E compared to Microsoft's. What are Microsoft's future growth prospects when they already own 95% of the desktop computing market? Zune? Xbox? Steve Ballmer signature lunchboxes? Where are all their grown expectations that justify a higher valuation than Apple's?
Apple investment funds buying back shares lowers the float, albiet not in the official figures. It would also make a ready market for block sales, thus putting a floor on the stock price. Thanks for asking.
The stockholder of record usually has their stock held within a brokerage account. In those cases, 95% of stock, Apple transfers funds to those brokers and they credit your account. It all happens seamlessly. You have the money in your account that day. If you hold your stock as a physical certificate I think they physically mail you a check, not sure.
Rocketman
https://forums.macrumors.com/posts/16991936/
Last edited:
Here's an exercise: Think for a few moments about what a price to earnings ratio tells you...
The ratio of market price to earnings is not a meaningful relationship, because one does not directly affect the other. Does it tell you about the value of the underlying business? No, price is not an accurate reflection of the underlying value of a business.
What P/E does tell you is how much of a premium the market paid in excess of earnings for shares of that company. It doesn't tell you where the price will go. It doesn't tell you what you should pay. It doesn't tell you by itself that the market is being wise (though when compared to fundamental valuation methods it may tell you when the market was being stupid... which happens often).
So P/E is not really a valuation method. It's a ratio, period.... If the task of valuation is to determine what you *should* pay, and not the blindingly obvious and useless historical fact of what the herd already paid, then P/E is not a useful valuation method by itself.
And most M&A experts would agree. They might glance at P/E just to get a sense of how irrationally exuberant (read: dumb) the market is being about that company, but their acquisition price isn't going to be based on that. It'll be based on a broad analysis of a variety of inputs to the underlying operations of the company.
Operating Value, as I call it, is a strong benchmark and one that Buffett frequently embraces. He acquired See's Candies at a third of working capital, and anyone who argued that P/E was a better metric would not have made the fortune he did.
If the goal is to pay 80 cents for a dollar, and then sell that to someone who will pay more than a dollar, P/E doesn't tell you what you should pay.
It's sort of like the rule of buying the cheapest house in a nice neighborhood, not the nicest house in a crap neighborhood... because you can fix the house. You can't fix the neighborhood.
Likewise, you're looking for the underpriced company with otherwise solid operating results in a SECTOR that tends toward a higher P/E. The cheapest house in a nice neighborhood. So P/E is telling you a little bit about pricing tendencies, not valuation.
Important to always remember Buffett's distinction between price and value: "Price is what you pay. Value is what you get."
Thank you for the education. I often forget company stock is also issued to employees as part of compensation/reward.
I'd only add to TallManNY's point by saying that stock price may not matter to Apple in terms of generating capital, but it does matter from a mergers & acquisitions perspective.
That is, currently Apple is too expensive to attract extremely large new stakes that would shift the balance of ownership (and therefore the balance of influence on Apple's board). However, as unlikely as it is, a severely underpriced Apple could in principle instigate a hostile takeover.
Again, that's an unlikely scenario in Apple's case given the large amount of cash with which they could easily combat potential takeovers with a buyback.
I made a post well before AAPL hit 700 saying it would hit 445 and possibly 420. Both came to pass and both were based on purely technical trading. Gaps as a primary factor.
Look up my posts on it.
BTW another technical measure says it will go above 700 by the same margin as the ultimate bottom. Let's say the ultimate bottom is 420 and the top was 705. The difference is added to the top to give you 990. It might take 6-12 months to get there. You have dips in most stocks in May-June and August-September. You can trade on that. Even if you only do 4-5 trades a year, using options on the downside and stocks on margin on the upside. Keep a 5% trailing stop to be safe. Send me 10% of your net gains.
Rocketman
It really is a kind of crazy thing to suggest that reading the chart is all you need to do to predict the future. Apple's stock is up today. But it has nothing to do with the chart. It has to do with world events. Specifically Apple's major competitor had a bizarre and only mildly impressive launch of its flagship phone yesterday. The GS4 is revealed and so investors have more information to weigh how sales will split between the iPhone and the GS4. You couldn't get that from a chart, but you could anticipate this from rumor sites talking about the GS4.
I can think of a few reasons why there might be general patterns to stocks in a very broad way. But using technicals for any one stock adds too much randomness. The technicals can't predict future events and the stock is ultimately priced based on those events. I mean in the case of Apple, the death of Jobs is still a major drag. If he were still alive, even if he took every action that Cook took and nothing was different, the market would have more faith in Apple's ability to innovate and the stock would not be trading at only 10 times earnings. Not a chance of that, I think.
But P/E is a nice shorthand way to talk about the company. I primarily want access to Apple's huge revenue stream (i.e., the earnings). I think those earnings are going to increase year over year (even if the increase isn't at the crazy level it has been for the prior years. So I buy the stock. For me paying 10 times earnings seems very reasonable, especially when I compare it to other easily accessible investments that I can make like broad mutual funds or bonds. And especially when I predict that those earnings will increase year to year.
Granted I got a little nicked up on those purchases this year. But as of today, two out of my three buy-ins for this year are in the black.
And of course the purchases from several years ago are nicely up. I think there is still a ton of upside in the Smartphone Market. Everyone wants one and profits haven't been squeezed out by commoditization. There should be years of improvements left to go in these phones (despite the pundits who claim innovation is dead).
You may say that, but you are wrong. It is trend lines and Fininacci. Look them up. Then try it once. Options only cost $100 and up.
sure... whatever you say! yup, I'm sure imaginary lines and random patterns in a chart can predict the value of a business. Why don't analysts and Warren Buffett think of that instead of looking at silly things like financial statements and the underlying economics of a business? Surely they'd save thousands of hours by looking at imaginary patterns!
Ive is NOT making the next iOS. He's not a coder or a software engineer. That job is now Federighi and the iOS team. He now leads both the OS X and iOS team.
All Ive is doing in addition to his job as industrial designer is to give some ideas for the human interface UI.
Apple is expected to release new OS updates on a yearly basis now. That's a standard they said they would do, no one is pushing them to release iOS 7 and OS X 10.9 except them.
heh heh, have you look at the earning lately? 4Q11 earning was 13.87, 4Q12 earning was 13.81. 1Q12 earning was 12.31 1Q13 earning based on management guidance is going to be about 9.75; 2Q12 earning was 8.82, you want to guess what is earning is going to be in 2Q13? How do you have a growth company when your earning is going in reverse. The whole notion of growth company was busted by the 1Q13 projection.
And if you look at gross margin 4Q11 was 45% 4Q12 was 39%, 1Q12 wa 47.3% 1Q13 according to management is going to be between 37.5% to 38.5%. 2Q12 gross margin was 42.8%.. Wanna to guess what the gross margin for 2Q13 is going to be?
Apple big problem as a company is that their gross margin is being compressed. They have to increase 15-20% more revenue to keep their earning the same as last year since their margin get compressed. Introduction of new lower price product will increase the unit sales, may or may not increase revenue because of cannabalization. And margin for the company as a whole will get hit. So you have a very uncertain future of lower gross margin and we don't know if the the revenue increase will make up for the earning loss, let alone earning grow.. When Apple introduce Iphone 5 last year, it looks like they can make $50ish earning in fiscal 2013, now they would be lucky to make low $40ish earning. Comparing to fiscal 2012 earning of $44ish , how is Apple a growth company?