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by shubb
1357 days ago
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Remember that buybacks are another way of returning money to shareholders, and Meta bought 10% of it's shares this year. A 10% yield is pretty significant and reflects its high PE ratio. However, they took on 10bn in debt this summer, joining Apple and the other FANGS. These companies claim to have high margins. For me, if Apple claims to make a 20% margin, but then spends all that money and needs to borrow more, and its revenues are shrinking - that's not a growth stock and that's not an honest earnings. If you need to spend the money to continue to make sales, it's part of your operating costs. If you need to borrow money to continue to operate, you don't have a margin. At least Meta is genuinely spending its borrowed money on future growth (trying to build this VR thing) and is continuing to grow revenue in local currency terms . We might not believe it would work, but it's honest margin. Not a zero profit growth stock - yet. I think we are in a wierd situation where some companies are being more honest than others, and the honest ones will be punished until the pendulum swings in the next 2 quaters. |
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NB that having a large cash reserve and borrowing more money are not mutually exclusive. From a large company's perspective, borrowing money when times are good and money is easy to get are low gives the company a "war chest" to either be able to suddenly invest money quickly should the need arise, or to weather long drawn-out storms, when times are bad and money is hard to get.
EDIT: Apple has around $100B in debt, and around $202 billion in cash reserves; it could pay off its debt tomorrow if it wanted to; but then it would have "only" $100B in cash.