How Apple’s massive cash pile is holding back its stock price

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Apple shells out billions to go green with solar energy and other environmental initiatives.
The Apple Store in Shanghai
Photo: Apple

Despite meteoric iPhone sales, a hot new watch, and a music service coming soon, Apple’s stock price has stalled the last few months, and its massive pile of cash could be a big reason why.

Apple analyst Neil Cybart explained on Above Avalon that while you’d think having $200 billion in the bank wouldn’t be considered a problem, all that money is causing Wall Street to seriously devalue how much AAPL is worth.

“Unless foreign cash is brought back to the U.S. in order to boost the magnitude of share buyback, Apple’s excess cash will continue to grow, and the valuation metric that the market is giving Apple will continue to be suppressed.” writes Cybart.

Apple has $194 billion in cash but it doesn’t need all of it to run its business, according to Cybart. Theoretically, the company could repurchase 30 percent of itself, except most of it is held overseas, making it subject to a heavy tax if it were brought back to the U.S.

Now that Apple’s cash creation machine is generating more money internationally than its able to spend on stock repurchases and cash dividends in the U.S., investors are more likely to undervalue Apple’s stock. It’s highly unlikely that trend will stop anytime soon now that China is the biggest iPhone buyer.

above-avalon-chart

This puts CFO Luca Maestri in a tough spot to please investors, and Cybart says there are really only three options:

  • Lobby for U.S. Tax Law Changes/Holiday
  • Continue Issuing Debt to Fund Capital Return
  • Do Nothing

Apple will probably just keep using debt to fund its buybacks because it’s so dang cheap, but it sure would be nice to see Apple bring that money back to the U.S. and invest it back into the country it professes to love.

Head over to Above Avalon for the in-depth analysis on Apple’s cash problem.

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