ITPM Flash Ep33 is a video series from the Institute of Trading and Portfolio Management (ITPM), founded by Anton Kreil, that provides market insights from the Institute’s senior trading mentors.

ITPM Flash Ep33 – Summary

In this episode of ITPM flash Jason McDonald talks about share buybacks, when they are important and when they’ve failed to add value!

In the first 7 days of February 2024 S&P500 companies have anounced a combined $105B in share buybacks, the strongest number for February on record! Jason mentions that this could be a sign that CEOs are quite bullish for the time a head. But not every buy back actually adds value or is “constructive”

Boeing

The company bought back $39B of stock between 2018-2023 or the equivalent of 80% of free cash flow. If you consider the recent problems they had with their 737 MAX they would’ve been probably better off investing in their product!

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Charter Communications – CHTR

They bought back $72B between September 2016 to December 2023 – this equals around 50% of their shares outstanding. If you take a look at the stock price, this strategy hasn’t worked out.

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Why Companies Use Buy Backs

Companies with excess cash have four choices:

  • Undertaking CAPEX / Investing in the existing business
  • Pay out cash dividends to shareholders
  • Acquire other companies
  • Use cash/debt to buy back shares

Share buy backs reduces the shares outstanding which increases the EPS (because there are fewer stocks). Some companies use this technique when they think their stock is underpriced. In this case they could add a level of support to the stock price.

When you look at the leading 125 buy backing companies, they average 16% annualized return over the last 5 years which is slightly better than the broader market. Of course there are very positive outliers like “BLDR” which has generated 69% annualized return over the last 5 years!

ITPM Flash Ep33 – Conclusion

Buy backs have been a proiment factor of outperformance in the last few years but we have to always dig in deeper. There are companies were buy backs didn’t add value (like Boeing). Stock buy backs should could support stock price but they should always be used in conjunction with a strong fundamental view of the stock!

Disclaimer

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About me

The Institute of Trading and Portfolio Management (ITPM), founded by ex-Goldman Sachs trader Anton Kreil, helped me on my journey to become a profitable retail trader

Review of ITPM Courses

The courses of the Institute of Trading and Portfolio Management helped me massively to become a profitable retail trader. I genuinely believe that ITPM provides the best trading education on the market – but not everything is perfect. Find out more in my reviews

Results of my Mentoring with Anton Kreil

In September 2022 Anton Kreil asked me and another one of his former mentees, if we want to do a webinar with him. After the Thailand class in April 2022 and the following mentoring with Anton from Mai to July 2022 I thought it was great opportunity to show what I have learned and how I have progressed

ITPM Thailand Mentoring

After completing my first ITPM Course, the PTM 1.0 (the predecessor of the PTM 2.0), I knew I want to do a mentoring. After a thorough analysis I decided to attended the April 2022 Thailand mentoring class

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