The recent surge in Apple’s stock price following the announcement of its $110 billion stock buyback program has garnered attention from investors. The buyback program is expected to increase the company’s share price by creating additional buying pressure in the market and reducing the share count. This move should theoretically make Apple more attractive to investors by boosting earnings per share.
Despite the positive response to Apple’s buyback program, there are doubts about whether it will lead to long-term success for the company’s stock. Dan Nathan, principal of RiskReversal Advisors, pointed out that Apple has already been repurchasing shares over the past few years without significant positive impact on the stock’s performance. The stock is still down for the year and has been underperforming compared to its Big Tech rivals.
Apple’s experience with buybacks mirrors the performance of the Invesco Buyback Achievers ETF (PKW), which tracks companies that have reduced their outstanding shares by at least 5% over the past year. The ETF has also underperformed the S & P 500, indicating that stock repurchases may not always lead to a significant boost in share prices. Even the top holdings in the ETF have failed to outperform the broader market.
Investors are starting to question the effectiveness of using cash for stock buybacks instead of investing in other opportunities that could potentially generate higher returns. Apple’s decision to prioritize buybacks over alternative uses of cash may not appeal to all investors, especially if the stock continues to underperform despite these efforts. The buyback program’s impact on the stock price remains uncertain in the long run.
While stock buybacks can be a valuable tool for companies to enhance shareholder value, the recent skepticism surrounding their effectiveness raises concerns about their impact on stock performance. Apple’s buyback program may provide a temporary boost to its share price, but the company will need to demonstrate sustained growth and outperformance to win over investors in the long term. As the debate over the benefits of stock buybacks continues, investors will be watching closely to see if Apple’s strategy pays off in the future.