Warren Buffett has said he shifted to buying companies at a fair price and selling when they become expensive.
He also stated that a company’s value is the present value of the total free cash flow it will generate until it “dies.”
Based on that, I wrote this to quantitatively examine, from a PFCR perspective, when Apple stock was bought and sold.
PFCR at Berkshire Hathaway’s Apple Buy/Sell
The table and chart above use Berkshire Hathaway’s fiscal quarters. (I note this because Apple’s fiscal year ends in September.)
Example: 2016Q1 refers to March 2016.
For convenience, Annual FCF is the one-year FCF corresponding to the quarter in which the buy/sell occurred. This one-year FCF is defined using Apple’s reporting period.
Example: If Berkshire bought in 2016Q1 (Berkshire basis), Annual FCF is Apple’s one-year FCF from October 2015 through August 2016.
Analysis
They began buying when PFCR was roughly 10, which was Q1 2016.
After the iPhone 6 “supercycle,” lower upgrade rates and foreign-exchange headwinds dragged down revenue and net income, and unfavorable working-capital movements—such as deferred revenue and other liabilities—further compounded the impact, leading to a sharp decline in operating cash flow in 2016.