10 Stocks Shrinking Shares

Wall Street generally considers stock buybacks a bullish signal. They return capital to shareholders while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.

Today, we'll draw up a list of companies that have announced stock-buyback programs and then consult Motley Fool CAPS to see which of those companies the 94,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, Fools should take notice.

Here are some of the latest companies to announce share repurchase programs.

Company

Buyback Announcement Date

Amount of Buyback

CAPS Rating (Out of 5)

SI International

3/24/08

700,000 shares

****

Check Point Software (NASDAQ:CHKP)

3/26/08

$400 million

****

Books-A-Million

3/26/08

$5 million

**

Dentsply

3/26/08

3 million shares

****

Noah Education (NYSE:NED)

3/27/08

$10 million

***

Perficient (NASDAQ:PRFT)

3/27/08

$10 million

****

Omnicare

3/27/08

$100 million

***

Ark Restaurants

3/27/08

500,000 shares

***

Pain Therapeutics (NASDAQ:PTIE)

3/31/08

$10 million

****

Fortune Brands

3/31/08

15 million shares

****

Sources: Company press releases, Motley Fool CAPS.

Investors at CAPS seem to approve of this group of companies, considering that most have received three-star or better ratings. Yet it should be noted that a company is not obligated to repurchase shares just because it has announced its intention to do so.

The easy credit policies of the past few years have helped fuel buybacks. Companies didn't mind borrowing big bucks to repurchase their shares even if they were trading at all-time highs. According to Standard & Poor's, there were $586 billion in buybacks last year among S&P 500 companies, with $138 billion in the fourth quarter alone. Yet that figure was well below the record $172 billion in the third quarter. With credit policies tight, we may be seeing far fewer share-repurchase programs in 2008, or at least fewer companies less willing to follow through.

Proficiency in consulting
It shouldn't be surprising that an IT consulting firm like Perficient would be dented a bit in today's economic climate, and, true to form, when the earnings conference call was held and guidance was reduced, the market dropped the stock 9%. Yet Perficient has been trending lower since last summer and is now at just a third of the price it traded at then. Management thinks it's reached the bottom. A soft January has been followed by stronger business to the upside since, but management's still being cautious and has scaled back guidance by 10% or so from previous forecasts.

Even so, Perficient's got some headwinds still before it. It has business with large companies, such as IBM (NYSE: IBM  ) and Oracle (Nasdaq: ORCL  ) , which are swallowing up two other big-name companies that it had business with, Cognos and BEA Systems (Nasdaq: BEAS  ) , respectively. That should create softness in revenues even as Perficient faces tighter budgets from clients.

Reaction by CAPS investors, though, has been rather skillful in picking out the prospects for growth here. More than 97% of those who rated the company see the IT consultant outperforming the market, and some like schuured think that, at worst, Perficient makes for a tempting takeover candidate:

This "middle-ground" IT consulting firm is well positioned for several smart [acquisitions] in this sagging economy, or perhaps would make a smart buy for one of the big international firms (Accenture, etc) ... I like their balance sheet (no debt) and though there isn't a lot of cash on the books, management has been pretty intelligent with acquisitions in the past - paying off debt quickly. The sagging economy is the biggest short-term risk here, but at prices this low, I imagine the future looks bright.

Foolish fallout
You've heard from your fellow investors -- now it's your turn. Motley Fool CAPS is a completely free, fun service where more than 94,000 investors have their say every day. Sign up for CAPS today, and share your best pitch for why your favorite stock will beat or lag the market.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 611225, ~/Articles/ArticleHandler.aspx, 12/18/2014 11:15:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement