Apple's debt-funded buybacks mask slowing growth
The bear case argued for Apple is that the company is taking on debt to fund share buybacks to artificially boost EPS growth while its underlying revenue growth has stalled.
The argument
The guest argued that this financial engineering works well in low-rate environments but becomes a structural risk if business growth slows naturally due to the law of large numbers. He contrasted this with using cash to buy operating assets that ensure long-term sustainability, noting that Apple's revenue growth is currently minimal despite its strong brand.
The thesis, stress-tested
✓ What validates it
- ✓A sustained decline in pre-EPS organic earnings growth
- ✓Further deceleration in hardware or services revenue
▸ Risks discussed
- ▸The company's strong brand and high cash generation provide a buffer
- ▸Historically low cost of debt has made buybacks look highly accretive
Hear it yourself
"Well, this works until it doesn't. Because if for some reason the business changes or just slows its growth, which could be just a natural evolution, like part of this is the law of large numbers."
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