Hi Conor, great article as everything you write. Your blog is one of the best out there, really. What tools, software or websites do you use to screen for buybacks?
Hey Caomhnoir, thanks for the kind words, means a lot!
I have been using Koyfin for several years to conduct research like this. They have a pretty comprehensive free product, which you can find linked to throughout this particular essay under the charts I shared.
I also give 6 months of Koyfin free to supporters, as well as give everyone a 20% discount if you ever decide you like here. Here is a demo of the platform, its pretty great.
Meta and Google are both serial diluters. See Ben Hunt's "Stock Buybacks and the Monetization of Stock-Based Compensation". Meta Spent 100% of FCF over a decade on dilution. Google wasn't much better. They're merely transferring the last 10 years of FCF to management. Yet people don't care.
I think you could say they have been serial diluters in the past, these two are still relatively young when compared with Apple, so i think the time frame chosen for this particular essay is not apples to apples.
Will be interesting to see how the trend for Google and Meta continues over the next ten years.
I enjoyed reading your thoughts and explanations on this however I have always thought that share repurchases are a lack of forward vision by the management. I would rather they spend their capital on acquiring competitors or suppliers to help grow their business.
Thank you for the kind words and taking the time to comment. I think your comment is a common one; some people see share repurchases as a sign of maturity and eventual decline, or simply as a signal the company has fewer attractive reinvestment opportunities than they used to.
For growthy-er investors (as well as other styles), it can be a sign to move on. There are some companies (rare, albeit) who can continue to grow exceptionally while also paying dividends and conducting share repurchases, but there are many ways to skin the cat I suppose.
For me, I own a mixture of mature and younger companies. There are some companies I own where i'd question management if they started aggressively buying back shares at their stage in the business life cycle because, like you said, they have more attractive areas to deploy that capital.
Glad it could be useful, thanks for taking the time to share that comment Alejandro.
I think the term is somewhat commonly used, but not extensively. I suspect most would infer what you mean by it even if they didn’t know the meaning at face value.
Share buybacks can be very expensive. In your explanation of how share repurchases can increase earnings, you neglected this fact. If a company spends a certain percentage of earnings on purchasing shares, then the earnings per share will not increase at all. Mihir Desai has an excellent explanation of why share buybacks are value neutral in his book How Finance Works, the chapter entitled "Capital Allocation." One of the reasons share buybacks make stock prices go up is that they signal a great deal of confidence on the part of management; in addition, share buybacks, by reducing equity, reduce the cost of capital. But I believe that their effect on earnings per share tends to be neutral.
Hi Conor, great article as everything you write. Your blog is one of the best out there, really. What tools, software or websites do you use to screen for buybacks?
Hey Caomhnoir, thanks for the kind words, means a lot!
I have been using Koyfin for several years to conduct research like this. They have a pretty comprehensive free product, which you can find linked to throughout this particular essay under the charts I shared.
I also give 6 months of Koyfin free to supporters, as well as give everyone a 20% discount if you ever decide you like here. Here is a demo of the platform, its pretty great.
https://www.youtube.com/watch?v=AW-G_Gqijrw
Hi Conor
You showed in a great way, that share buybacks can be a double edged sword.
Thanks ER!
Meta and Google are both serial diluters. See Ben Hunt's "Stock Buybacks and the Monetization of Stock-Based Compensation". Meta Spent 100% of FCF over a decade on dilution. Google wasn't much better. They're merely transferring the last 10 years of FCF to management. Yet people don't care.
Thanks for suggesting that article, great read!
I think you could say they have been serial diluters in the past, these two are still relatively young when compared with Apple, so i think the time frame chosen for this particular essay is not apples to apples.
Will be interesting to see how the trend for Google and Meta continues over the next ten years.
I enjoyed reading your thoughts and explanations on this however I have always thought that share repurchases are a lack of forward vision by the management. I would rather they spend their capital on acquiring competitors or suppliers to help grow their business.
Thank you for the kind words and taking the time to comment. I think your comment is a common one; some people see share repurchases as a sign of maturity and eventual decline, or simply as a signal the company has fewer attractive reinvestment opportunities than they used to.
For growthy-er investors (as well as other styles), it can be a sign to move on. There are some companies (rare, albeit) who can continue to grow exceptionally while also paying dividends and conducting share repurchases, but there are many ways to skin the cat I suppose.
For me, I own a mixture of mature and younger companies. There are some companies I own where i'd question management if they started aggressively buying back shares at their stage in the business life cycle because, like you said, they have more attractive areas to deploy that capital.
Phenomenal article on this topic. I’d never paid attention to buybacks but now I understand their relevance when analysing stocks.
By the way, Is the term ‘share cannibal’ extensively used or you came up with it?
Glad it could be useful, thanks for taking the time to share that comment Alejandro.
I think the term is somewhat commonly used, but not extensively. I suspect most would infer what you mean by it even if they didn’t know the meaning at face value.
Share buybacks can be very expensive. In your explanation of how share repurchases can increase earnings, you neglected this fact. If a company spends a certain percentage of earnings on purchasing shares, then the earnings per share will not increase at all. Mihir Desai has an excellent explanation of why share buybacks are value neutral in his book How Finance Works, the chapter entitled "Capital Allocation." One of the reasons share buybacks make stock prices go up is that they signal a great deal of confidence on the part of management; in addition, share buybacks, by reducing equity, reduce the cost of capital. But I believe that their effect on earnings per share tends to be neutral.
Its hard to capture ever single bit of nuance in a short essay, will always end up leaving various perspectives out.