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ValuEngine.com (VE) is a stock valuation and forecasting service founded by Ivy League finance academics. VE utilizes the most advanced quantitative techniques and analysis available. Our research team continues to develop, test, and improve the VE Stock Valuation Models and econometric models for forecasting stock price movement. In recent years, VE has expanded its research program to include portfolio construction and tracking products. Our primary products are this website for individual investors and ValuEngine Institutional (VEI), a software package for equity fund managers and other financial professionals.

Keep an Eye on Apple Inc. (AAPL) Numbers Tomorrow

Apple Inc. (NASDAQ:AAPL) reports their latest earnings tomorrow and as usual, the media is full of reports on the health of the company. Catching the most attention right now are the company’s eye-popping cash reserves. It is expected that tomorrow’s results will show that the computer/tech giant has amassed more than $250 billion in cash. That figure means that Apple has doubled its massive reserve in less than five years.

That number is hard to comprehend, but tech writers -such as the excellent Christopher Mims – try to make it understandable. Some of Mims’ comparisons right now include the following:

  1. It’s greater than the annual military budget of China
  2. It’s greater than the market cap of Wal-Mart
  3. It’s enough to pay for the annual illegal drug use of the US population 2x and still buy every bitcoin in existence.
  4. It exceeds the foreign-currency reserves of the U.K. and Canada combined.

Why does Apple sit on this massive cash load?

Marketing and advertising? They don’t need to spend this cash on marketing, their mystique and legions of “fan-boys” provide yet another advantage. They spent half the cash on marketing than other giants– such as Google or Amazon.

Buying rivals? Paying for new technologies they don’t own? They don’t seem to be on a merger spree, which would be another reason to horde cash–and one the company often cites as a potential use for the reserves. Shareholders have been demanding action like this for years, to no avail.

Dividends? Share buybacks? Steve Jobs used to say that spending the money on new product development was a better use of the cash than paying out dividends or buying back shares. Here, we see some truth though. Since the death of Steve Jobs, Apple has given shareholders a big bonus by distributing more than $200 billion back to them in the form of dividends and buy backs.

However, the main reason Apple hordes all this cash seems to be related to the US tax code. As profit, this money would be hit hard if the firm tried to repatriate to the US. Apple is a strong proponent of a tax holiday or some other policy change which would allow it to bring the money home for a smaller tax hit.

In any case, investors are crazy for the stock right now. The shares have hit record high after record high since May. Shares are up @60% since then and heavy hitters such as Warren Buffett have taken bigger positions in the firm. Berkshire-Hathaway now owns more than 2.5% or Apple.

Is this interest warranted? We see a company that continues to ride its user base and enthusiastic tech heads on old technology. Sales have been slower than we used to see from this behemoth. Indeed, the company is so big that it is virtually impossible for it to continue at the rate we saw when they first developed the iPod and iPhone. Competition is strong from the likes of LG, Samsung (despite exploding phones), and the Android universe in general.

But, this is a year where the company will release a new iPhone–a tenth-anniversary edition that has the hard-core excited and investors ready for more. Will this new phone meet expectations? Or will it represent small changes and tweaks rather than an earth-shattering must-have device? Will proposed Trump Administration tax changes allow the company to bring home some more cash? Will the company use this potential cash windfall to bolster share prices or issue dividends?

Keep an eye on those numbers tomorrow. Sales figures will be key as we get through the Summer and the company prepares to release that new iPhone and update its other products.