Even though Apple Inc. has not been recording consistent performance in its share price performance, I strongly believe that the company has a lot of high potential to improve its share price. The greatest potential for the company to improve its share performance is its buyback plan. Apple Inc. announced a 60 billion dollar buyback plan that will enable the company to buy its own outstanding shares thereby boosting its share price faster than otherwise (Dlabay & Burrow, 2007). The company will be able to repay its debts using its earnings enabling it to record higher earnings per share. This is because the company will have very few outstanding shares. In recent periods, the Apple Inc. stock as well as the company’s underlying businesses has been fluctuating. The company’s gross profits reached an all-time high and later on proceeded to a downward trend (Quir, Fur, Salvi, & Vernimmen, 2011). To make matters worse, the company has been experiencing decelerated growth in its revenues. In fact, the company’s earnings-per-share ratios have dipped into the negatives. This is a very worrying trend for any investor. However, I do not consider the company’s stock as risky because Wall Street is yet to react. Furthermore, the company has placed announced a repurchase program that will ensure the company’s stock remain conservative (Dlabay & Burrow, 2007).
My perspective is that Apple’s business is doing fine and it has the potential of growing its earnings-per-share at a very slow rate. My bet is that the company will record a 3 percent growth rate in its EPS. Assuming a growth rate of 3 percent per annum, a discounted cash flow valuation (using a 10 percent discount rate and excluding dividend cash flows) suggests that the company’s shares will be worth 618 dollars a share. This is a potential profit for my futures worth 600 dollars a share for the Apple Inc. stock. An alternative investment is opening a fixed deposit account which offers an interest rate of 1.5 percent per annum. This is a lower return compared to the potential return associated with investing in Apple Inc. stock. The potential return from investing in Apple Inc. is 3 percent.
Dlabay, L. & Burrow, J. (2007). Business Finance. New York: Cengage Learning.
Quir, P., Fur, Y., Salvi, A. & Vernimmen. (2011). Corporate Finance: Theory and Practice. Chicago: John Wiley & Sons.