In search of a few new additions to your portfolio? You may want to consider investing in companies with buyback programs in place. A company capable of buying back its own shares offers advantages to its investors.
For one, buybacks raise earnings per share -- because when a company decreases its inventory of stock on the open market, earnings are divided between fewer shares. And higher EPS usually means a higher stock price, at least theoretically.
What's more, buybacks use up excess cash, which can indeed be too much of a good thing, if it's weighing down overall performance or sticking a bulls-eye on the company's back as a takeover target.
When company management buys up its own shares, in effect it's telling the market that its stock is undervalued. And they should know -- they are after all, the experts on their company. But can you take them at their word?
To find out if you can trust them, start by evaluating the management team's track record. Because if a company's management team has a history of outperforming their competitors, they obviously know what they're doing.
Here's Kapitall's list of the most efficient management teams buying back their own stock. We started with a universe of stocks that have recently announced buybacks, then narrowed it down by focusing on the stocks with the most efficient management teams. (Click here to access free, interactive tools to analyze these ideas.)
We define efficiency according to the following ratios: return on assets, indicating profitability relative to its total assets; return on equity, which shows the profit generated with shareholders' investments; and return on invested capital, measuring how well a company generates cash flow relative to its invested capital.
|
Company |
Buyback Program |
Return on Assets: 5-Year Average |
Return on Invested Capital: 5-Year Average |
Return on Equity: 5-Year Average |
|---|---|---|---|---|
|
Obagi Medical Products |
Recently announced a buyback program valued at $45M (17.70% of market cap) |
18.12% vs. industry avg. at 9.12% |
21.88% vs. industry avg. at 11.39% |
36.56% vs. industry avg. at 14.6% |
|
Family Dollar Stores |
Recently announced a buyback program valued at $750M (12.67% of market cap) |
9.87% vs. industry avg. at 6.57% |
15.88% vs. industry avg. at 10.83% |
20.31% vs. industry avg. at 18.47% |
|
Metropolitan Health Networks |
Recently announced a buyback program valued at $20M (11.53% of market cap) |
15.36% vs. industry avg. at 3.69% |
19.01% vs. industry avg. at 4.75% |
19.21% vs. industry avg. at 6.82% |
|
Comtech Telecom Group |
Recently announced a buyback program valued at $100M (11.32% of market cap) |
8.78% vs. industry avg. at 6.07% |
10.3% vs. industry avg. at 9.06% |
13.78% vs. industry avg. at 10.39% |
|
GameStop |
Recently announced a buyback program valued at $300M (10.19% of market cap) |
7.52% vs. industry avg. at 4.58% |
11.22% vs. industry avg. at 7.72% |
16.02% vs. industry avg. at 11.39% |
|
H.B. Fuller |
Recently announced a buyback program valued at $100M (9.82% of market cap) |
5.16% vs. industry avg. at 3.95% |
6.73% vs. industry avg. at 5.69% |
10.07% vs. industry avg. at 7.24% |
|
Consolidated Graphics |
Recently announced a buyback program valued at $50M (9.06% of market cap) |
3.41% vs. industry avg. at 2.38% |
4.37% vs. industry avg. at 3.4% |
8.25% vs. industry avg. at 3.77% |
|
Covance |
Recently announced a buyback program valued at $250M (8.25% of market cap) |
11.32% vs. industry avg. at 4.44% |
14.79% vs. industry avg. at 5.39% |
16.31% vs. industry avg. at 6.69% |
|
United Stationers |
Recently announced a buyback program valued at $100M (7.45% of market cap) |
6.5% vs. industry avg. at 2.97% |
10.1% vs. industry avg. at 5.07% |
15.84% vs. industry avg. at 6.68% |
Management efficiency data sourced from Reuters; buyback data sourced from RTT News. The list has been sorted by the size of the buyback program.
Interactive Chart: Press Play to see how analyst ratings have changed for all the stocks mentioned above.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
