Image source: Getty Images
In Apple(NASDAQ: AAPL) recent second quarter results, for the three-month period ended March 30, the technology company announced the largest share buyback in history. At $110 billion, the buyback was larger than most FTSE companies.
So what does this mean for Apple investors like me? And is the stock worth buying today?
An unprecedented share buyback
When Apple announced its unprecedented stock buyback, I wasn't particularly surprised.
You see, in recent quarters, Apple's revenue growth has really plateaued (-4% last quarter)
Meanwhile, the company has not announced interesting innovations in artificial intelligence (ai) as other big technology companies have done.
Therefore, it needed to do something noteworthy to keep investors interested.
A large buyback makes sense as it should benefit both the company and its investors.
The company will see its number of shares significantly reduced. This should increase earnings per share.
As for investors, they should benefit from higher earnings per share through share price gains (over time).
It's worth noting that the buyback comes after a period of share price weakness. This means Apple will buy back shares at lower prices, which is a good thing.
Given that Apple's market capitalization today is around $2.8 trillion, the $110 billion buyback is equivalent to about 4% of the company's shares.
To put the buyback figure into perspective, only five companies in the FTSE 100 index have market capitalizations above that figure (AstraZeneca, Shell, HSBC, Unileverand Rio Tinto).
Is it worth buying?
Is Apple Stock Worth Buying Today? I personally believe that.
I've been buying them for my own portfolio recently around $170.
At that price, they are not cheap from a valuation perspective. Given that Wall Street expects earnings per share of $7.20 for the year ending September 30, 2025 (the next financial year), the forward-looking price-to-earnings (P/E) ratio is around 24. That's high.
But this is one of the most dominant companies in the world. So in my opinion it is worth paying for it.
One of the reasons I remain bullish on Apple is that it has so many users locked in because of its ecosystem.
As Warren Buffett recently said: “If you are an Apple user and someone offers you $10,000, but with the only condition that they take away your iPhone and you will never be able to buy another one, you will not accept it..”
Another reason is that their iPhones are generally subsidized by telecommunications companies. Therefore, people are likely to continue buying them if there is a shortage of cash.
Of course, the lack of revenue growth right now isn't ideal. I would like to see revenue expand as this would help drive profit growth, which in turn would help the share price.
However, I think revenue growth will return in the not-too-distant future. Once the company releases an ai phone, I would expect to see a huge “product upgrade cycle” where consumers upgrade their phones en masse.
The big near-term risk is that the company's valuation drops a bit due to a lack of revenue growth. With other Big tech stocks seeing further revenue expansion, investors could shift their capital elsewhere.
However, I am confident that Apple will continue to grow in the long term.
