Is Apple Stock’s Shrinking Share Count Worth Paying Up For Near The Highs?

Apple (AAPL) stock has gained 41.2% over the past twelve months and trades near its 52-week high of $339.79. All the while, Apple keeps buying back its own shares, so each share you hold claims a bigger slice of the profit. That engine is real and well funded, but at 38.2 times trailing earnings it explains only a small part of what you are now paying for.

Why Are Apple’s Earnings Per Share Outrunning Its Profit?

Apple cut its share count by 1.7% over the last year and by about 2.3% a year on average over the last three. Each remaining share owns a little more of the company. Over those three years, earnings per share grew 14.3% a year on average, against 11.6% for net income. That gap of about 2.7 points a year is the shrinking share count at work.

The cash behind it is large. Over the latest twelve months Apple spent about $82.2 billion on buybacks and paid about $15.6 billion in dividends. Net of stock-based compensation, those payouts equal a total shareholder yield of 1.7% of the company’s market value.

Can Apple Keep Funding The Buyback From Its Own Cash?

So far it can, because Apple needs little capital to run. It generates about $146.7 billion of operating cash flow against about $10 billion of capital spending. The free cash flow left over covers the buybacks and dividends about 1.4 times. Net debt is about 0.1 times EBITDA, a low level of leverage.

The demand behind that cash is still strong. In the June quarter, revenue rose 16% to $109.4 billion, with iPhone up 22% and Mac up 29%. Management says both products are selling well ahead of its own forecasts.

Three pressures could thin that cash. The first is memory costs. In late July, management said it expected to pay even more for memory in the September quarter, partly offset by carry-in inventory whose benefit it expected to fade, and saw memory prices still rising after it. Apple has already raised prices on iPads and Macs. The second is supply. Management also said then that supply constraints on iPhones, Macs, and iPads would worsen in the September quarter. Together with currency, a separate drag, those constraints pull guided revenue growth for the September quarter to 9% to 11%.

The third pressure is Siri AI. Management says Apple is already spending quite a bit more on AI and that the balance between what Siri AI costs and the iCloud upgrades heavy users may buy is still uncertain.

Is Apple Priced For More Than Its Buyback Can Add?

The buyback is a real edge for an owner, and the cash covers it with room to spare. Still, net income growth did most of the work in Apple’s per-share growth, and the multiple leans on that business growth continuing.

So the stock looks fully priced near the high, reasonable to keep holding, but less compelling as a new purchase. The buyback should keep your slice growing while the cash holds. It cannot shield the price if memory costs or supply limits dent the iPhone and Mac cycle, or if Siri AI proves costly. To compare Apple with other companies that retire their own stock, our capital compounders ranking lines them up.

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