Why Apple’s Market Cap May Not Have Hit $ 2 Trillion


Apple (NASDAQ: AAPL) made headlines this week for becoming the first US company to achieve a market cap of $ 2 trillion. This is already a mind-boggling step in itself, but even more so when you zoom out and realize that Apple shares have more than doubled from March lows – Apple added $ 1 trillion to its total valuation in just a few minutes. months only.

Here’s the problem: Apple’s market cap may not have hit this historic threshold.

Image source: Apple.

The price threshold may be higher

There is a natural lag associated with many market events due to the timing of regulatory filings. In Apple’s case, its latest quarterly filing showed there were just under 4.28 billion shares outstanding as of July 17. Since a company’s market capitalization is simply calculated as its share price multiplied by the total number of shares outstanding, this translates to a price threshold of $ 467.77 for Apple was worth $ 2,000 billion. dollars – that the stock actually traded briefly above yesterday.

But that number of shares dated back to over a month ago, and Apple has been aggressively buying back its shares hand-in-hand for years. While some companies might use buyback programs to simply offset dilution in stock-based compensation, the sheer magnitude of Apple’s buyout program – the Cupertino tech giant repurchased $ 360 billion of shares in the past eight years – has resulted in a steady reduction in outstanding shares.

Graph of outstanding AAPL shares

AAPL shares outstanding given by YCharts

We don’t know how many shares Apple has undoubtedly repurchased in the past month. Has the company launched another Accelerated Share Buyback (ASR) program? Probably not, since he launched a new $ 6 billion RSA last quarter. Is the company already deploying the $ 5.5 billion in debt it raised last week for free market purchases? Perhaps; Apple has historically financed its buybacks with debt, although tax reform in 2017 changed the way business finance is calculated in this country.

For the background, investors know that Apple held just over 4.31 billion shares as of June 27 (its last balance sheet date). This shows that Apple repurchased around 37 million shares over the course of about 3 weeks. The point is, no one outside of Apple knows how many shares the company has bought back, but the price threshold for a market cap of $ 2,000 billion is a moving target. That will change superficially again once the Mac manufacturer’s 4-for-1 stock split takes effect later this month.

Apple has shown that the rise in its stock price rarely deters it from engaging in buyout activity, as management has long expressed confidence that the stock is undervalued. Trading at around 35 times earnings, it’s hard to say Apple stocks are expensive.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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