While earnings are the most important part of earnings season, they’re simply a yardstick that considers different accounting measures across different sectors. A different measure, cash flow, can give a sense as to a company’s ability to start and grow a dividend, buy back shares, or otherwise reward shareholders.
That cash flow may not always pass down to earnings. But for a poor investment, it’s often true that earnings will look higher than cash flow indicates.
With a slowing economy and slow sales environment for smartphones, Apple (AAPL) was looking dicey going into earnings. Yet the company beat on earnings, and brought in revenue of $94.8 billion. That’s some cash flow! It’s going partly to a $90 billion buyback and a dividend hike of 4.3 percent.
Those earnings numbers are a modest reversal from last year’s 6 percent drop in revenue growth and 13 percent drop in earnings growth. The company’s cash flow continues to remain strong.
Action to take: Investors may like shares on any drop under the $165 range. Shares aren’t an income play, with a 0.5 percent yield right now, but that ongoing growth could be huge over time. Plus, the buyback may help prevent shares from getting hit too hard in a market selloff.
For traders, Apple shares have trended higher since the start of the year. That’s likely to continue. The July $175 calls, last going for about $4.50, offer mid-double-digit returns on a further move higher.
Disclosure: The author of this article has a position in the company mentioned here, but does not intend to trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.