Several readers have asked about the effect of Apple’s repurchase program on its earnings per share.
It’s a good question, given how closely technical traders follow a company’s EPS and PE (price per earnings) ratios.
I may not be the best person to ask, however, given my track record on tricky math problems. Which is why I’m happy that a SeekingAlpha contributor named Gary Morton has taken on the task.
In a note published Saturday, Morton points out that the 12-month trailing (TTM) numbers most traders use are calculated by simply adding together the reported EPS for the most recent four quarters.
That’s fine when the number of shares outstanding doesn’t vary much from one quarter to the next.
But Apple is in the midst of the largest dollar volume stock repurchase in history, one that has sharply reduced its outstanding share count (the denominator in EPS).
The result is a material discrepancy between Apple’s key statistics as they are commonly reported and what those number actually are. I’ve summarized Morton’s adjustments in the table below:
The opinion of valuation experts might change, says Morton, if they knew that Apple was about to begin a massive roll out of new products with a PE ratio below 15. (The S&P 500 average, by contrast, is currently 19.21.)
What does this mean for the average investor?
“At the least,” writes Morton, “you can conclude that Apple is a stronger valuation play than most believe. At the most, if you believe in the company’s future, you may conclude that Apple is a screaming buy.”
LINK: Apple’s EPS And All-Time High Are Higher Than You Think
UPDATE: Readers who know more than I about these things are debating the merits of Morton’s assumptions and calculations in the comment stream. But the large error in share counts in an earlier version of this story was mine alone.
Follow Philip Elmer-DeWitt on Twitter at @philiped. Read his Apple (AAPL) coverage at fortune.com/ped or subscribe via his RSS feed.
