Two days before Apple's (AAPL) annual meeting — the first in more than a decade that Steve Jobs won't attend — Financial Alchemist's Turley Muller offers beleaguered shareholders a statistic that should provide some comfort:

Apple's cash holdings have grown at an annual rate of 50% (year-to-year) or more every quarter for the past two years. (link)

"Cash flow, not earnings, best reflects a firm's investment prospects," writes Muller in a post published Monday. This is especially true for Apple these days because the usual standard for evaluating a stock — earnings per share (EPS) — captures only a fraction of the revenue flooding in from iPhone sales.

As Apple's executive team has repeatedly pointed out to analysts, the company doesn't recognize the income from sales of the iPhone in the quarter in which it is collected. Instead, using so-called subscription accounting, it spreads it out over eight quarters — the life of a typical iPhone contract. (See Spotlight on Apple's hidden revenue stream.)

That revenue isn't lost, of course. It flows directly into Apple's coffers, which have swelled over the past two years from less than $12 billion to more than $28 billion.

See Muller's chart below (click to enlarge):

Because most analysts continue to track Apple's EPS without taking this hidden revenue stream into account, says Muller, they're missing the impact of a rising tide of cash.

Apple today trades at 17 times earnings per share, but only 8.5 times cash flow per share. "That's a massive difference," Muller writes. Apple shares have historically traded at 40 to 50 times earnings.

"In my opinion, the short-term economic challenges are priced-in," Muller concludes. "But [Apple's] long-term competitive advantage and earnings power is being ignored. … Eventually, when the economy shows signs of regaining its footing and investors are comfortable owning stocks again, AAPL will go much, much higher." (link)

Here's a headache most companies would love to have.

Apple is sitting on a huge cash reserve — $24.5 billion as of September and growing at the rate of $8 to $10 billion a year –  that's doing almost nothing for it.

The money is earning about $1.55% interest after taxes, according to a report issued Wednesday by Bernstein Research's Toni Sacconaghi, at a time when the company's stock is trading at a unusually low (for Apple) multiple of 15 times earnings.

That makes conditions ideal for a massive buyback of Apple (AAPL) shares, says Sacconaghi.

"Mathematically," he wrote "share buybacks boost EPS only if a stock's P/E multiple is lower than the reciprocal of the after-tax interest rate earned on cash."

Apple has been trading at 30 to 40 times earnings in recent years, which Sacconaghi believes is one reason Apple has not initiated a stock repurchase program in the past 5 years.

But today, according to Sacconaghi's model, Apple is trading at about 18 times his fiscal year 2009 earnings estimate (and about 13 times earnings using non-GAAP numbers). By his formula

18 < 1/.0155 < 64.5

Sacconaghi goes on to calculate what a buyback would do to Apple's share price. Ten billion dollars spent purchasing Apple share, he estimates, would boost the company's (GAAP) EPS about 4%. A $20 billion buyback program would boost it about 9%. And if the $20 billion program were front-loaded — completed in the first fiscal quarter of 2009 — the company's EPS could jump as much as 15% (or $0.75 a share).

Heady stuff for shareholders. And, according to Sacconaghi, better than the alternatives: making a major acquisition, paying a substantial dividend or continuing to let its cash hoard grow — which might make it a tempting target for corporate raiders who see the cash as a way to pay for a hostile takeover.

A big dividend — say, 5% — would consume only about half Apple's cash flow, and a special dividend would dilute Apple's earnings growth too much to please shareholders.

A major acquisition is another possibility, but it would be out of character for Apple. The company usually buys small shops that it can bend to its will, and there aren't many big ones out there that can keep up with Apple's blistering pace of innovation.

Of course, Steve Jobs may have better ideas than Toni Sacconaghi about what $25 billion can do. The last time Apple's stock fell this sharply — plunging from nearly $40 a share in March 2000 to $7.44 in December 2000 –  Jobs used the cash he had on hand to start a chain of Apple Stores.

[Chart courtesy of Bernstein Research.]