Investing in U.S Tech/FANG stocks?

bowlhead99

Prism said:

Thrugelmir said:

Interesting to read that Apple has spent $324bn on share buybacks in the past few years. If the share buybacks are discounted. EPS is currently what it was back in 2015. Financial engineering is certainly a way of flattering underlying financial performance. 

Agreed, lots of manipulation. Apple's earnings are up about 20% over the last 5 years and if you remove the Trump tax changes they are less than 10% up. Meanwhile earnings per share are up about 50% due to buybacks. Share price up 150%

Well, earnings per share are saying how much profit do you get for your share of the business. If all the profits to be generated going forward are now split between fewer shareholders - because surplus cash was used to pay off former shareholders who will no longer be claiming 'their share' of what Apple can make in future - then each share is more valuable than it was before because it represents a larger share of the business than it would have been had the buyback not occurred. 

Some people see this as 'manipulation' when of course it is just an efficient tool to get money back to the owners of the business. And nothing inherently terrible about funding it by debt if the company can afford the coupon, just like some landlords may borrow cheaply against one property to release equity from another.  If a tax break affords the company an opportunity to repatriate cash, that's useful. 

Of course, if some earnings enhancement came from buybacks rather than from cash profit, that rate of EPS growth won't necessarily be sustainable if buybacks can't continue at the same rate. But the fact that the company is now making better EPS because it has less idle cash in the bank and fewer unnecessary shares in issue, is not some great charade. The next 10% of profit growth would still translate into 10% EPS growth without further buybacks.

Prism

bowlhead99 said:

Prism said:

Thrugelmir said:

Interesting to read that Apple has spent $324bn on share buybacks in the past few years. If the share buybacks are discounted. EPS is currently what it was back in 2015. Financial engineering is certainly a way of flattering underlying financial performance. 

Agreed, lots of manipulation. Apple's earnings are up about 20% over the last 5 years and if you remove the Trump tax changes they are less than 10% up. Meanwhile earnings per share are up about 50% due to buybacks. Share price up 150%

Well, earnings per share are saying how much profit do you get for your share of the business. If all the profits to be generated going forward are now split between fewer shareholders - because surplus cash was used to pay off former shareholders who will no longer be claiming 'their share' of what Apple can make in future - then each share is more valuable than it was before because it represents a larger share of the business than it would have been had the buyback not occurred. 

Some people see this as 'manipulation' when of course it is just an efficient tool to get money back to the owners of the business. And nothing inherently terrible about funding it by debt if the company can afford the coupon, just like some landlords may borrow cheaply against one property to release equity from another.  If a tax break affords the company an opportunity to repatriate cash, that's useful. 

Of course, if some earnings enhancement came from buybacks rather than from cash profit, that rate of EPS growth won't necessarily be sustainable if buybacks can't continue at the same rate. But the fact that the company is now making better EPS because it has less idle cash in the bank and fewer unnecessary shares in issue, is not some great charade. The next 10% of profit growth would still translate into 10% EPS growth without further buybacks.

Yup, I have nothing against buybacks as opposed to dividends as an investor as it has benefited me as much as anyone during the last few years. And anyone who looks at the financials will see the reality of those companies even if casual investors don't. It doesn't seem to say much for the recent performance as Apple as a company if like you say those buybacks slow or stop. Likely why it isn't included in many popular funds with a tech focus.