Apple Stock: EPS Growth Will Depend Mostly on This

One major factor is likely to contribute to 50% of Apple’s EPS growth until 2025. In the Apple Maven dives deeper into this topic.

since 2013, the year that the former CEO Tim Cook took over as the chief of staff, Apple has been aggressively purchasing it’s own stock. Repurchases of stock have been among the main reasons behind the company’s annual 19% EPS increase since 2013 and has helped propel Apple shares up (AAPL) to a new high. Apple Inc. reports up by 770 percent.

In the future Buybacks are expected to be a bigger part in the overall anticipated growth of the company’s bottom line. This is the reason and what additional factors can boost EPS growth above current expectations.

Apple is a big fan of their own stocks

The following chart shows Apple’s aggressive buying policy for it own stock. After the issue and issuance, the Cupertino firm has used almost half of a trillion dollars to purchase its shares since 2013. There are a variety of reasons Apple has been able accomplish this.

The business’s recent growth has transformed it into a cash flow generator. Additionally, Apple already had a lot of cash in its bank accounts prior to the time its CEO Tim Cook took over -around $120 billion which includes investments, a lot of it in the world. Additionally, Apple is very timid in committing money to acquisitions, which allows money to distribute back to shareholders.

In the past I calculated that up to one-fifth of Apple stock’s growth over the last ten years could be due to buybacks. This is because the retirement of shares boosts earnings per share (think on the basis Net earnings divided by outstanding shares).

The role of ransoms is moving forward.

This is interesting: Because Apple has shown so much generosity in its repurchases of stock, its net cash balance has been decreasing. The chart below illustrates that the cash balance dipped from a high of $100 billion by mid-2019 , to just $80 billion in today’s dollars.

The Cupertino company has pledged to shrink its net cash balance to neutral over time . That means that cash on hands will eventually reach the level of the total amount of debt. At the rate it is currently the process will be a long time-consuming process, and shares should fall around three to four percent per year.

Incredibly, Wall Street currently estimates that Apple’s earnings are expected to grow at a growth rate less than 7 percent annually through the fiscal year 2025. This means that if the analysts be right that share repurchases could contribute to around half of Apple’s growth for the next few years.

What else can affect EPS growth?

The above observation could cause a shiver to investors. Not just are Apple’s profits forecast to be slowed in the coming years, most of the growth will be caused by Apple eliminating its cash balance.

The good news could be it is that Wall Street could be very incorrect about its expectations for EPS. Apple appears to be just only a couple of months, or at most, a couple of years away from exploring brand-new technology-related business opportunities.

Apple’s mixed-reality device could launch in 2022. A Apple Car could then be unveiled in 2025. Both of these ventures remain hidden from view, and it’s difficult to assess their impact today in the financials of Apple for the foreseeable future.

The EPS projections for Apple could be revised significantly higher once analysts know more about what they can expect from this Cupertino company. While we wait, share buybacks will remain an important driver of growth in the bottom line.

Is the price fair?

The study of a company’s basics is only a small portion of the task needed to determine the best stock. What one spends to hold the shares is an essential element in the overall success for any kind of investment. This is the reason why valuation analysis is essential.

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