Stuart Carlton on Apple’s Cash Hoard

Stuart Carlton:

Richman’s wrong here. Using cash to buy back stock is an excellent way to increase shareholder value, assuming that the stock in question is undervalued. If a stock is undervalued, each dollar of buyback creates more than one dollar of value. It’s like buying dollar bills for, say, 75 cents. There is a good argument that AAPL is undervalued right now. If so, buybacks would create shareholder value.

The problem with the MSFT and RIMM buybacks was that the companies were buying back stock that was overvalued. The problem wasn’t the strategy (buybacks), but the execution (buying back overpriced stock).

Makes sense. I.e. Apple should buy back Apple stock for the same reason any investor should buy Apple stock: it’s a good investment.

Update: To be clear, I’m not saying I think Apple should do a buyback. I’m just saying I agree with Carlton that Apple, with an undervalued stock today, would be in a different (better) position if they were to do a buyback today.

★ Wednesday, 20 July 2011