logo
  Join        Login             Stock Quote

Some Characteristics Of Share Buybacks-Or Why Volume Is Drying Up

 February 07, 2013 09:59 AM


Lately we have been doing some research into stock buybacks and have come to a few conclusions.

-Probably the most significant finding is that share buybacks, using data on the Russell 3000 universe,  have resulted in almost $3 Trillion in shares disappearing from the market.  Want to know why we have declining trading volumes over the past several years with NYSE average total volumes dropping -52%?  The first culprit is not HFT but instead the great shrinkage in shares outstanding. (Click on chart to enlarge)

-Between companies buying back their shares, private equity taking companies private, as well as natural selection (at least where the government allows it) and you have several reasons why trading volumes are lower. There is less trading volume because there is less to trade.

-Sadly one aspect of share buybacks that didn't really come as a surprise was how poorly companies are at valuing their shares.  Warren B has said in the past that buying back shares can be a good thing as long as you are not overpaying.  Well based on this it is safe to say that corporate America is indeed no Warren B.  Management apparently found their companies woefully undervalued at the top in 2007 as they repurchased record amounts of stock and then woefully overvalued at the bottom in 2008.  (Click on chart to enlarge)

-It would seem as though many executives have a hard time figuring out how to spend their cash or the debt that they have raised.  Instead of investing in their businesses they have decided to just raise the earnings per share by taking shares out of the market.  If they were doing it when their stock was cheap it would be a good thing but instead it points, at least to us, as a lack of ideas for real growth.

-Another interesting though maybe not completely surprising thing we found is that the buyback phenomenon is entirely a large-cap thing.  When we pulled data for the Dow Industrial's we found that those 30 companies accounted for 44% of all $3 Trillion that we saw in the Russell 3000.  (Click on chart to enlarge)

-Breaking it down a bit further we found that if you take the top 50 companies by capitalization in the Russell 3000 they account for 52% of all buybacks.  The smallest of the top 50 is Northrup Grumman which is a $15.8 Billion dollar company.  While some smaller companies do indeed buyback their shares it is largely a large-cap thing.

-Another interesting thing we are looking at is where the buybacks are occurring.  Breaking down the cumulative buybacks by sector we can see that technology and financials have seen the majority of the benefits while utilities, telecom, and materials have seen almost none of it. (Click on chart to enlarge)

iOnTheMarket Premium
Advertisement

Advertisement


Post Comment -- Login is required to post message
Name:  
Alert for new comments:
Your email:
Your Website:
Title:
Comments:
 

rss feed

Latest Stories

article imageChart Says This Retailer's Comeback Isn't Finished

One of the surprises, at least on the surface, of the market's recent swoon was the outperformance of read on...

article imageETF Performance Review: Major Asset Classes | 19 Dec 2014

It’s all about real estate investment trusts (REITs) these days when it comes to bullish performance among read on...

article imageOil and Global Stock Markets Rebounding Sharply

So far so good on our expectation of a 4 to 5% pullback and then a resumption of the bull read on...

article imageGrading the FOMC

Love its members or loathe them, you have to admire the gradual impact the policy-making committee has had read on...

Advertisement
Popular Articles

Advertisement
Daily Sector Scan
Partner Center



Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.