Over the past few years, as hit products like the iPhone have driven rising cash flow at Apple (NASDAQ:AAPL), the tech giant has started to return more cash to shareholders. While the company offers a meaningful quarterly dividend of $0.52 (an annual yield of more than 1.7%), share repurchases have been Apple's main tool for deploying excess cash.

This focus on share buybacks has been very good for investors, as Apple has been able to buy back a lot of stock at a discount to the current share price. With Apple stock having recently pulled back about 15% from the all-time high reached earlier this year, now would be a great time for Apple to double down on its buyback activity.

Buyback pace is slowing
Apple's buyback activity peaked in the 2014 fiscal year. After spending about $23 billion to buy back stock in FY13, Apple repurchased $45 billion of its stock last year. As a result, Apple's diluted share count during Q1 of FY15 was down nearly 7% year over year. This added $0.20 to Apple's EPS in Q1 alone.

By contrast, Apple's buyback activity has been slowing this year. Through the first nine months of the fiscal year, Apple spent $22 billion on share buybacks, down from $28 billion in the year-earlier period.

Furthermore, since Apple's stock price has been higher this year, the number of shares repurchased has declined even more steeply. Apple's diluted share count was down less than 2% in the third quarter compared to the first quarter.

Plenty of cash -- just not in the U.S.
The slowing pace of buybacks at Apple flies in the face of its moves to increase its buyback plans from $60 billion to $90 billion in April 2014, and then to $140 billion in April 2015. It also comes despite Apple's strong free cash flow and growing cash pile.

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Popular products like the iPhone 6s are driving strong free cash flow at Apple. Photo: Apple

At the end of last quarter, Apple had about $203 billion of cash and investments on its balance sheet. Even after deducting its debt, Apple's net cash position totaled nearly $150 billion. Meanwhile, the company generated a stunning $60 billion in free cash flow through the first nine months of FY15.

However, there's a catch. The vast majority of Apple's cash -- $181.1 billion at the end of June -- is held outside the U.S. for tax purposes. It would be subject to a repatriation tax of up to 35% if it were brought home and used for buybacks. Plus, most of Apple's free cash flow is being generated outside the U.S. due to Apple's growing success in foreign markets like China.

Since Apple doesn't want to pay the stiff repatriation taxes -- it's hoping that the government will eventually lower the rates through corporate tax reform -- it has to borrow most of the money it wants to use for share buybacks.

It's still time for faster buybacks
Despite this limitation, Apple should probably seize the opportunity presented by its recent share price slump to buy back more stock. Apple stock now trades for less than 10 times free cash flow, which is a shockingly low valuation.

Apple currently has more than $50 billion in outstanding debt, which certainly seems like a lot. But Apple paid just $200 million in interest on that debt last quarter, while receiving $766 million in dividend and interest income from its investments. Apple could potentially add another $100 billion in debt without paying any net interest expense.

Furthermore, from a cash flow perspective, adding more debt doesn't necessarily leave Apple worse off because shrinking its share count will reduce the amount spent on dividends.

Apple has taken some tentative steps in the direction of more debt-funded buybacks, issuing nearly $2 billion of bonds in the U.K. last week. But that alone won't make much of an impact on Apple's share count.

Apple's management should make a bolder move to increase its buyback activity, particularly if the stock remains under pressure. Once investors realize that the sky isn't falling, today's sub-$120 stock price may be gone forever.

Adam Levine-Weinberg is long January 2016 $80 calls on Apple, short January 2016 $120 calls on Apple, and short January 2016 $140 calls on Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.