Monday, April 28, 2014

Management's attempt to inflate a bubble in Apple stock

By expanding its share buyback program, management is influencing investors expectations of an asymmetric payoff.  Using market price to project the business fundamentals is purely manipulating the investors expectations. In addition, by doing a 7 for 1 stock split, management is attempting to capitalize on investor psychology by attracting retail investors towards another potential gain opportunity in the stock. Strength of the company's fundamentals, massive shareholder capital return program, mutual interaction between the underlying trend and investor's bias will lead to divergence of reality from actual fundamentals

My fair value estimate for Apple hasn't changed after the recent earnings release. Recent price movement in the stock has converged the gap between price and value. However, above mentioned management actions and their consequences can possibly mark the beginning of a bull run in Apple, but I don't think it will end in a pretty way.

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