Tuesday, February 4, 2014

Should Apple's CEO Care About Its Stock Price?

Apple's CEO is a large holder of Apple stock.  Accordingly, he should be carefully managing the company to increase its stock price.  This article shows that it would be foolish for the CEO to be overly concerned about fluctuations in Apple's stock price.

Apple's stock price is very volatile. Its reached a high of $705 in 2012 and low of $385, which was a loss of over $300 billion in its market capitalization,  before arriving at its current price of around $500. Its price to earnings ratio is only 12, which is well below the average for F500 stocks.  Moreover, Apple has around $158.8 billion in cash and securities.  The market can't figure out what Apple is worth, so how much attention should the CEO pay to the management of Apple's stock price?

There is another problem with the myth about the need for CEO's to manage shareholder value.  Apple was funded with around $100 million provided by its early investors.  They have been rewarded many times over for funding Apple. Apple benefited more from government investments in DARPA technologies, which have enabled its development of successful products, than it has from  its early investors.  Apple's stock price has been driven by its remarkable growth in profits which has attracted investors who are primarily interested in selling the stock at a higher price than they paid for it.  Apple's CEO should be more concerned about his ability to continue developing highly successful products than he is about rewarding traders.  The stock price will take care of itself as long as Apple continues to roll out successful products.  His ability to do is not closely related to fluctuations in Apple's stock price.

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