Michael Kors Holdings Ltd (KORS) Shows Apple Inc. (AAPL) How Stock Buybacks SHOULD Work

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A recent article in Fortune suggested that Apple Inc. (NASDAQ:AAPL) wasted $15 billion of shareholder funds over the last nine quarters repurchasing shares at inflated prices.

Michael Kors Holdings Ltd (KORS) Shows Apple Inc. (AAPL) How Stock Buybacks SHOULD WorkIt’s a common occurrence among publicly traded companies. In general, they’re a complete waste of time.

But all is not lost.

Michael Kors Holdings Ltd (NYSE:KORS) has done a better than average job buying back its stock in recent quarters. In fact, Apple would do well to study Michael Kors sto figure out how stock buybacks should work.

Apple’s Buyback Faux Pas

Fortune’s article based its $15 billion figure on nine quarters of Apple stock data spanning from Sept. 30, 2013, to Dec. 31, 2015. The stats to know:

  • That’s 27 months of buybacks involving the expenditure of $87.2 billion at an average price of $115.
  • The high and low for Apple stock over this period was $134.54 and $67.77, respectively.
  • AAPL paid just 14.5% less than the high, 70% more than the low and 14% more than the average of the two.

At a time when Apple is struggling to find its way and temporarily was passed by Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) as the world’s most valuable publicly traded company, it seems crazy that the company would mindlessly waste money overpaying on buybacks — or for that matter making share repurchases at all — but that’s where we sit.

Making things worse is the fact that Apple can’t repatriate the funds to invest in the U.S. (it could but would have to pay tax at 35%), so it’s left incurring debt to pay for these buybacks. It’s no different than borrowing against your home equity line of credit to invest in the markets.

That’s something most personal finance experts warn against, yet AAPL continues to do it — at a cost to shareholders.

Why Michael Kors Has It Right

That’s not to say buybacks are wrong 100% of the time. Sometimes they actually make sense, as is the case with Michael Kors stock, which lost 46% of its value over the same 27 months. Was it a screaming buy that KORS management couldn’t pass up, or did they just get lucky? We’ll never know.

Here’s what we do know.

Michael Kors bought back $1.45 billion in KORS stock over this 27-month period at an average price paid of $51.85 per share. The high and low during this time was $101.04 and $36.63, respectively. Using the Apple stock criteria from earlier, it paid 49% less than the high, 42% more than the low, and most importantly in relation to Apple stock, Michael Kors paid 25% less than the average of the two.

KORS stock has been on a nearly 30% tear in 2016 through Feb. 4.

Although much of this jump was due to its upbeat earnings report a couple of days earlier, it’s not out of bounds to suggest investors saw what management did in recent quarters and that was a KORS stock truly undervalued compared to its peers and, dare we say, Apple itself.

For those believers in stock buybacks, Apple could learn a thing or two from Michael Kors.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/michael-kors-stock-buybacks-apple-aapl/.

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