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Apple stock’s big problem

Apple stock has a big problem. You need to know this if you are considering buying the stock or if you have it in your portfolio.

So, here they are: Apple’s new products

On Wednesday, 7 September, Apple launched its new products with much fanfare again. But, as always, it disappoints. Why? On the one hand, because the commotion is too much, creating too high an expectation. But – on the other hand – Apple improves its products just a little bit every year. I think Apple has long been able to make an iPhone where the battery never runs out, which you can fold into a stamp and put in your inside pocket, just as Philips could make a light bulb that didn’t break 100 years ago.

Apple’s share price

Around the day Apple announced its new products, Apple’s share price did not move much. Looking back, this is always true for the past few years.

But, this year, the share price did move a bit. Namely, in January, you had to pay $180 for 1 Apple share, and at the time of writing, it was around $155. Is this crazy? No, not at all, because considering a lot of shares of comparable large companies, Apple is not doing so crazy this year. Especially if you live in the eurozone – and you probably do – you would have had a price gain on the dollar of about 12% compared to 1 January this year, so the picture looks even better.

Looking further at Apple’s share price over a more extended period, say from 2012, you see a very nice upward trend, which started at $15. Especially in the last two years, there were some more violent outbursts, which – not surprisingly – started at the beginning of the corona crisis.

Apple’s performance over the last ten years has also been good; higher sales and more profits!

But Apple’s money is running out very quickly

Many people will know that Apple is one of the world’s largest companies with a lot of cash on its balance sheet. For instance, at the end of 2019, they still held over $100 billion in cash. At the last report, at the end of June this year, that had shrunk to under $50 billion. What’s going on….?

What’s going on?

Apple’s current CEO, Tim Cook, took over from Steve Jobs in 2011. Where Jobs had a big focus on products, Cook has primarily focused on business operations since his takeover. Within this, he has rolled out a “share buyback program” on a large scale. In this, companies buy up shares, boosting revenue and earnings per share. After all, there are fewer outstanding shares in the market. Apple is therefore running out of money buying back its shares. For instance, ten years ago, they had 16.7 billion shares outstanding in the market. Meanwhile, that number has dropped to “only” 10 billion shares. With the money they have available now, they can buy back about another 4% of that number.

You will understand that Apple’s relative figures have been very much affected by this in recent years. After all, earnings per share growth have been strong mainly because the number of shares has fallen by around 40%. Moreover, as cash starts to run out, earnings per share growth will come under intense pressure in the coming years!

Will the Apple fall far from the tree?

Apple shares have a big problem, notably that earnings per share over the past ten years have been highly affected by Apple buying up its shares on a massive scale. They won’t be able to do that for the next ten years because they are running out of money.

If the stock is not to fall in the next few years, they need to innovate their products much faster so that their final sales and thus their revenue and profits will rise sharply.

Be aware of this and include it in your considerations!

Trad€ Safe

 

Kaspar Huijsman

‘’It’s a jungle out there, Trade Saf€’’
Vlogger at https://www.youtube.com/c/hugoinvesting
Podcast https://open.spotify.com/show/6ZsgB344CImYjkvNX1lc3w
Founder of https://hugoinvesting.com/
Founder of https://academy-for-investors.com/
Former CEO BinckBank Spain https://www.binckbank.com/hugoinvesting
Former CEO Saxo Bank Spain https://www.home.saxo/about-us
Co-founder Alex Beleggersbank https://nl.wikipedia.org/wiki/Alex_(bank)

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