I'm highly skeptical about the economic value of most share repurchase programs. To see why, look at the following graph of the total buyback dollar amount for the companies in the S&P 500, compared to the average price of the index on a quarterly basis:
Source: Standard & Poor's.
Share buybacks for the S&P 500 accelerated in the second half of 2004, culminating in a sharp spike during the first two quarters of 2007 -- just as the stock market was peaking. Conversely, when stocks traded at bargain prices during the worst of the crisis, share buybacks dried up. Then, as stocks became more expensive during the rally that began in March 2009, companies once more became happy to step up the dollar amounts spent on share repurchases.
Still, not all buyback programs hurt shareholders. In order to ferret out the smart capital allocators and shame those who fritter away shareholder capital, I've begun to track newly announced share repurchase programs. Today, it's the turn of online employment specialist Monster Worldwide (NYSE: MWW ) .
How much, for how long?
Monster's new repurchase authorization is up to $250 million worth of shares to be acquired through April 2013; there are no other restrictions.
How cheap is the stock?
In the buyback announcement, Monster's CEO explains, "In addition to providing a return of capital to our shareholders, we believe our stock represents an excellent investment at today's prices." That's a good start, although Mr. Iannuzzi appears to imply that if the stock represents an excellent value, it's a secondary or incidental benefit. In fact, it's the opposite: The relationship between price paid and value is the sole factor that determines whether this return of capital is compounding or destroying shareholder wealth. Just how cheap (or expensive) are the shares right now? Based on price-to-earnings, Monster trades in the middle of a group of its peers:
|
Company
|
Forward P/E
|
| QuinStreet |
21.0 |
| Yahoo! (Nasdaq: YHOO ) |
19.3 |
| Monster Worldwide |
15.9 |
| Korn/Ferry International (NYSE: KFY ) |
12.4 |
| LinkedIn (NYSE: LNKD ) |
NM |
Source: S&P Capital IQ. NM = not meaningful.
Is this a buy signal?
Monster's price-to-earnings multiple is in the top half compared to the stocks in the S&P 500, in the bottom half compared to industry peers, and in the middle quintile of its own five-year history. At roughly 16 times next 12 months' estimated earnings, Monster shares look neither significantly overpriced nor underpriced. There was a flurry of insider stock purchases on Aug. 30 and Sept. 9, but the average price paid was $8.17 -- 17% below the current price. That's a sure benchmark of a price at which the CEO believes the stock represents "excellent investment." If you'd like to track Monster or any of the stocks in the table above, you can do so with our free application, My Watchlist.
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