On Friday, Apple’s stock surged by 6% following the announcement of the biggest stock buyback program in U.S. corporate history. The $110 billion buyback program was intended to boost the company’s share price by reducing the share count and increasing earnings per share. However, some experts are skeptical about the impact of stock buybacks on Apple’s stock performance.
Dan Nathan, principal of RiskReversal Advisors, pointed out that Apple has already been buying back stock consistently over the past three fiscal years, with an average of $20 billion in share repurchases each quarter. Despite these buybacks, Apple’s stock has still underperformed the market and many of its Big Tech rivals. Nathan argued that investors may see more value in Apple retaining its cash rather than using it for buybacks.
Apple is not the only company experiencing underwhelming results from stock buybacks. The Invesco Buyback Achievers ETF, which tracks companies that have reduced their outstanding shares by at least 5% over the past 12 months, has also underperformed the S & P 500 ETF. Even the top holdings in the fund, including T-Mobile, have failed to outperform the broader market significantly.
Investors are increasingly questioning the effectiveness of stock buybacks as a strategy for driving stock prices higher. While buybacks can create buying pressure in the market, the long-term impact on share prices is less certain. Companies like Apple are facing scrutiny over their allocation of cash resources, with some investors preferring that companies invest in growth opportunities rather than repurchasing shares.
Despite the initial excitement surrounding Apple’s massive stock buyback program, the long-term impact on the company’s stock performance remains to be seen. Investors are looking beyond buybacks and focusing on growth prospects and strategic investments as key drivers of stock prices. As companies continue to navigate the evolving landscape of corporate finance, the debate over the efficacy of stock buybacks is likely to persist.