DISCLAIMER: I am not a financial advisor and nothing in this post should be considered investment advice. The content below is simply my opinion.
Later tonight I’ll be writing up my first Conference Call Recap after Apple reports quarterly earnings. Before doing so, however, I think it is important to address the importance of having an investment thesis going into earnings season. An investment thesis is basically your reasoning for taking a position in a particular stock. These beliefs help you to decide if the company is performing in accordance with your expectations and can help you determine an exit point or simply allow you to feel confident that the story is playing out the way you had envisioned it when you took your initial position.
It might not be necessary for everyone to re-evaluate their investments on a quarterly basis, especially for buy and hold investors who plan to stay invested for years or even decades. There are certain to be good quarters and bad quarters for any company, and macro events can lead to relatively poor earnings even for companies making all the right moves. Nevertheless, I personally like to listen to management’s comments on the company the four times per year that results are made public.
For Apple, specifically, I am following the cash flow story. For all the attention that the company receives for its iDevice sales, the big draw for an investor is the free cash that it generates. Even if iPhone sales drop, as they are expected to this quarter for the first time in years, so long as Apple continues to be the leading premium smartphone maker the cash pile should continue to grow. As an investor, this means that Apple can continue to grow its dividend payout, something it has publicly committed to doing already. In addition, the share buyback program helps reduce the number of slices the pie is divided into, meaning each slice is worth more on an earnings per share (EPS) basis. Should the pie continue to grow in the coming years while the share count is reduced, shareholders should continue to be handsomely rewarded. Tonight we should get an update on both the dividend and buyback programs, otherwise known as the capital allocation strategy. For me, it is another checkpoint along the way to make sure my investment in Apple is on the right track.