As a follow up to my previous post on the equity performance of stocks for companies with high cash balances, I thought it would interesting to also look at how some of this cash (or in some instances the lack there of) is deployed. Specifically, I am looking at share buybacks. I believe it is fairly well known that equity performance following share buybacks is everything but stellar, as corporate managers are neither adept or consistent market timers. But hey, who is?
To that end, the below chart shows the the average equity performance of stocks following large buybacks (defined as 1% or greater of shares outstanding).
The equity performance of shares following buybacks has, on average, slightly underperformed the market over the time period looked at. Not a great indication of the apparent value of share buybacks.
To refresh your memory, the following chart shows the average performance for the stocks with companies having high cash balances (defined as cash per share greater than 25% of the share price). For comparisons sake, I have also included the performance for share buyback companies.
Again, not a rousing confirmation that stock buybacks are of any incremental value to shareholders.
This got me thinking, what would the average performance be for companies in the S&P 500 who had high cash balances and did not buyback a significant amount of shares. In a nutshell, even better.
What about companies that have high cash balances and also buyback a significant number of shares? As the chart below shows, the performance is just abysmal.
The moral of the story is be careful with stocks that buyback shares, and cash may not necessarily be trash.
To that end, the below chart shows the the average equity performance of stocks following large buybacks (defined as 1% or greater of shares outstanding).
The equity performance of shares following buybacks has, on average, slightly underperformed the market over the time period looked at. Not a great indication of the apparent value of share buybacks.
To refresh your memory, the following chart shows the average performance for the stocks with companies having high cash balances (defined as cash per share greater than 25% of the share price). For comparisons sake, I have also included the performance for share buyback companies.
Again, not a rousing confirmation that stock buybacks are of any incremental value to shareholders.
This got me thinking, what would the average performance be for companies in the S&P 500 who had high cash balances and did not buyback a significant amount of shares. In a nutshell, even better.
What about companies that have high cash balances and also buyback a significant number of shares? As the chart below shows, the performance is just abysmal.
The moral of the story is be careful with stocks that buyback shares, and cash may not necessarily be trash.
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