Tuesday, May 14, 2019

Buy Backs

I should mention right off the bat that I hate them. They do nothing good for a company. They are not reinvesting in their company as the company does not get to use the money for anything good for the long term prosperity of the company.

An investment in a company will put money into something real, like R&D, the employees, building better computer system or buildings or more factories or facilities. Buy Backs do not do that. Bay Backs make it appear, falsely, that per share values are rising when they are not.

For example, it produces a higher EPS, but earnings have not really gone up. Rising EPS generally shows a company is doing better, but if it rises because of Buy Backs, earnings are not really rising. You calculate EPS by dividing the Net Income by the outstanding shares. Mostly the EPS rising because the Net Income increases. However, you will get a higher EPS if the outstanding shares goes down. People see higher EPS and think that earnings are going up but they are not.

I cannot think of any good that Buy Backs do. I can sort of see it if the stock price is really low on a relative basis. However, most of the Buy Backs that I see they occur when stock prices are relatively high. I find that rather stupid.

On the web site Investopedia the author finds some good in buy backs, but mostly finds some bad scenarios. Annie Lowrey on The Atlantic has written an interesting article on this subject.

On my other blog I wrote yesterday about Canadian Utilities Ltd (TSX-CU, OTC-CDUAF) ... learn more. Next, I will write about Hammond Power Solutions Inc (TSX-HPS.A, OTC-HMDPF) ... learn more on Wednesday, May 15, 2019 around 8 am.

This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my site for an index to these blog entries and for stocks followed. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

No comments:

Post a Comment