Few companies on the planet are as rich as Apple, and when I say ‘rich‘ I mean it in every sense of the word. Stock price, valuation, quality products, profits, satisfied customers, number of industry copycats.
While Apple’s stock price appears to be languishing, it’s relative to the historic high of $700 or so, not from where the stock was when co-founder Steve Jobs died or when CEO Tim Cook took over. By all accounts, though, Apple is undervalued at the current price. The company also sits on about $150-billion in cash, despite an expensive stock buyback program.
All that money attracts an ocean of sharks, and presents the company with a number of issues. If Apple did not institute a dividend program or a stock buyback program, and the stock continued to languish despite huge profits, and maintained that obscene P/E ratio, in a few more years the company would have enough cash to buy itself and go private.
As it is, though, Apple’s shareholders have grown rich along with Apple’s executives and employees. The rest of us merely bask in the sweet goodness of great products and the joy that comes from engaging in one of America’s two new national sports– Apple bashing, and Apple watching.
The problem with Apple using cash to buy itself and go private is multifold. Unlike Dell, Apple isn’t in dire straits; the company is healthy, not beleaguered. Apple shareholders have a say, and something to gain by a stock price increase. Profits.
Now, back to the sharks. Apple is sued often because the company is opportunistic, and is loaded with cash. But Apple is also able to defend itself well against such attacks. Because the company’s stock has prospered so much in the 20th century, Apple has less experience defending itself against the likes of corporate raider Carl Icahn. As a large shareholder (if less than half of one percent is considered ‘large‘), Icahn has a say, and he wants his $2-billion chunk of Apple’s stock to increase in price.
You’ve also heard the term ‘give money back to shareholders‘ tossed around as a way to get Apple to cough up some of those billions in profits. Here’s a problem I have with that. It’s not the shareholder’s money. It’s Apple’s money. Carl Icahn didn’t give Apple $2-billion in exchange for stock, so Apple has gained nothing from investors who have driven the stock price up (or down) in recent years. While shareholders own a slice of the company, they’re the same shareholders who elect the board of directors, who, in turn populate the executive staff. Everyone in the food chain stands to gain handsomely as the stock price goes up (regardless of the company’s fortunes in the marketplace), but saber rattling occurs when the stock price languishes (as it has in the past year or so), the native shareholders become restless and begin to make noise. That noise can be quieted somewhat with dividends and buybacks, but even going private has challenges (as current shareholders want to maximize their investment).
One more thing, we often use the term ‘investment’ to qualify a stock purchase in a company. We ‘invest’ in Apple by buying the company’s stock. Except that’s not really an investment in Apple. Apple doesn’t get the money. Whoever sells the stock gets the money. The investment is in the stock itself. So, giving money back to the shareholders is a quaint phrase that doesn’t really describe what’s going on.