Week Ending 04/19/13: $390.53 (-39.27) Apr 21, 2013 9:20:12 GMT -5
Post by mark on Apr 21, 2013 9:20:12 GMT -5
Apr 20, 2013 20:22:58 GMT -5 @greggthurman said:
Cash is nice, and certainly helps justify valuation, but investors buy the future
You cannot justify Amazon's price/multiple on its cash holdings, nor can you do so with Google, or Yahoo, or any other publicly traded companies.
The value of AMZN (Facebook?) is totally about the future potential for revenue and earnings, as is the valuation of companies/startups that don't have earnings today, but are expected to have them in the future.
IMO, cash and other tangible assets provide a floor in share price. I don't know the breakdown, but I would wager that Apple's cash, physical assets, patents and brand name alone are worth close to the $366B market cap WS has assigned us. That would put absolutely zero value on the future, which would be absurd even in the most bearish of views.
That cash pile is no longer contributing to a floor, since it's basically just sitting there. The buyback program's reach is just slightly better than trivial. The dividend is only now appealing because of how far we've fallen. Something needs to be done with that cash to support the share price, and it needs to be done soon.
And yes, I fully agree that concerns over future earnings are weighing is down too. But there is ZERO doubt in my mind that had a cash plan been announced back in December, we never would have come close to breaching $400.
Typically, the companies valued based on cash and tangible assets alone are companies that are going out of business. Going concerns are valued more for their future streams of income, and if they have lots of cash, how they plan on using that cash to increase income. Right now, a buyback is the best use of that cash that I can see. Perhaps in a few weeks we get an announcement of $40-50B buyback?