I personally watch out for share dilution, I don"t really look at buybacks. I prefer if the company reinvests like AMZN or pays a dividend which I can reinvest as I want. Buying back shares won"t give me anything more if the share price falls for whatever reason, and my ownership in trillion dollar companies is not substantial enough for the buybacks to matter in my wallet! I probably don't understand the concept enough to add it in my analysis.
The other way it helps is the old "reducing shares means EPS and Cash Flow per share go up even if earnings and cash flow stagnate" criticism. Financial engineering in the sense that even the same profits and same multiple can lead to higher share price 🤷🏻♂️
Nice one Matt! You just need to look at a comparison of shares outstanding for Apple vs Tesla over the past 10 years and you get a good insight on which company’s management has their shareholders interests in mind!
great video Matt...thanks for going into that analysis...always pay attention to issuance of stock in addition to buybacks but learned something new today related to those items...thanks!!!
Hi from Spain Matt. Nice video, very instructive as alwayas. One point I look is how a company allocate its capital, and if they use debt to finance buybacks.
Wow Matt thank you so much for this video, you thought me something that was so way outside of my realm of stock picking, I look at graphs all day and read through there financials on the Microsoft web and never even thought to consider share buy backs thank you i feel like this puts a whole new perspective in buying individual stocks thank you so much man 🙏🏼
Nice video. One thought about the calculation: it seems like since you use the market cap from 1 year ago, this metric would be very slow to update. (Versus dividend yield, which updates all the time.) When you are looking at how a company in your portfolio executed over the last twelve months, I think the way you have defined it makes sense. Maybe that is the best use for this metric. But it might be nice to have a way to calculate it that takes into account the current market cap, so you could say something like this: “at the current valuation, my company is trading at a dividend yield of X, plus a buyback yield of X.” Hope my comment makes sense! Thanks.
It does - the only challenge is that buybacks are less consistent than dividends. When a company says "I'm going to pay X dividend" for a lot of companies it basically means "I will pay this or more" so taking current market cap isn't as big of a deal because you can project dividends into the future. With buybacks, even if you know how much they have authorized, you won't know how much they will buy back. Especially since they may choose to buy back when the stock is cheaper (better) and reduce buybacks when the stock is high. So you can't really project out into the future as much. What you can do is evaluate what has already happened though. That's how I see it anyway, not sure if there are other reasons
Yeah the more I think about it, the more I think it probably makes more sense to just track it at each earnings report (like EPS, revenue, etc). But, I do think you could probably calculate it like this: quarterly buybacks divided by market cap at the start of the quarter. Then sum together the last 4 quarters to get an APY. Should give essentially the same result as your method, but it might “respond” a little bit faster to a dramatic change in market capitalization. But more complicated! 😁
When big tech companies buy back shares, how much does that offset shares as part of total compensation? How did the layoffs impact stock from the standpoint of big tech retaining RSUs of laid-off employees?
Ok, looking for your opinion. We both have MCD’s and when I saw their target misses I expected the them to drop, but instead they’re up 6%. Thank-you, but I don’t know why. What are your thoughts?
I'm talking about it in my video for tomorrow - market reaction is just a market reaction. Could be traders trading. Could be people thought they'd do worse so it was priced in. Who knows. Ultimately they need to fix their growth issues and get traffic back or the stock will continue to go down IMO. They also had a tough comp from last year's quarter, so let's see how they do going forward.
There's a couple ways to think about this. The benefit you get is a larger ownership stake in the business / claim to future cash flows. So if you have 100 shares of a company with a million shares outstanding, you own 0.01% of the shares. If they retire 100,000 shares, now you own 0.011% of the shares. That doesn't seem very helpful though. The other way to think about the benefit is that companies that do buybacks can improve their earnings per share and free cash flow per share numbers. Even if the business isn't growing earnings, you can improve EPS by reducing the share count. If you're growing earnings and reducing the share count, then the EPS goes up even more. Usually price follows EPS or cash flow growth. Ie, a company that reports 20% EPS growth is likely going to go up in terms of share price. Make sense?
McDonald’s is very cost inefficient in other countries like in Europe where you can eat very healthily for cheaper than in America because we have gardens and small grocery stores ran by people. We can afford better quality food than in America for less money than fast food. So in Europe they try to dress up these chains and make them seem like they are luxury
Really good stuff, Matt. I really appreciate your going a level deeper on these topics without making us sit through a 45 minute video. Keep it up!
Thanks, no worries!
I personally watch out for share dilution, I don"t really look at buybacks. I prefer if the company reinvests like AMZN or pays a dividend which I can reinvest as I want. Buying back shares won"t give me anything more if the share price falls for whatever reason, and my ownership in trillion dollar companies is not substantial enough for the buybacks to matter in my wallet! I probably don't understand the concept enough to add it in my analysis.
The other way it helps is the old "reducing shares means EPS and Cash Flow per share go up even if earnings and cash flow stagnate" criticism. Financial engineering in the sense that even the same profits and same multiple can lead to higher share price 🤷🏻♂️
Nice one Matt! You just need to look at a comparison of shares outstanding for Apple vs Tesla over the past 10 years and you get a good insight on which company’s management has their shareholders interests in mind!
great video Matt...thanks for going into that analysis...always pay attention to issuance of stock in addition to buybacks but learned something new today related to those items...thanks!!!
Awesome, no worries!
Hi from Spain Matt. Nice video, very instructive as alwayas. One point I look is how a company allocate its capital, and if they use debt to finance buybacks.
100%, very good point. That was one of the things I didn't like about Waste Management when I sold them last year.
Thank you, that is the best buy back explanation i have seen
Wow Matt thank you so much for this video, you thought me something that was so way outside of my realm of stock picking, I look at graphs all day and read through there financials on the Microsoft web and never even thought to consider share buy backs thank you i feel like this puts a whole new perspective in buying individual stocks thank you so much man 🙏🏼
No worries!
Nice video. One thought about the calculation: it seems like since you use the market cap from 1 year ago, this metric would be very slow to update. (Versus dividend yield, which updates all the time.)
When you are looking at how a company in your portfolio executed over the last twelve months, I think the way you have defined it makes sense. Maybe that is the best use for this metric.
But it might be nice to have a way to calculate it that takes into account the current market cap, so you could say something like this: “at the current valuation, my company is trading at a dividend yield of X, plus a buyback yield of X.”
Hope my comment makes sense! Thanks.
It does - the only challenge is that buybacks are less consistent than dividends. When a company says "I'm going to pay X dividend" for a lot of companies it basically means "I will pay this or more" so taking current market cap isn't as big of a deal because you can project dividends into the future.
With buybacks, even if you know how much they have authorized, you won't know how much they will buy back. Especially since they may choose to buy back when the stock is cheaper (better) and reduce buybacks when the stock is high. So you can't really project out into the future as much. What you can do is evaluate what has already happened though. That's how I see it anyway, not sure if there are other reasons
Yeah the more I think about it, the more I think it probably makes more sense to just track it at each earnings report (like EPS, revenue, etc).
But, I do think you could probably calculate it like this: quarterly buybacks divided by market cap at the start of the quarter. Then sum together the last 4 quarters to get an APY. Should give essentially the same result as your method, but it might “respond” a little bit faster to a dramatic change in market capitalization. But more complicated! 😁
Share buyback should be the pure reduction in shares. Outstanding today vs a year ago. No need for $ calculations.
When big tech companies buy back shares, how much does that offset shares as part of total compensation?
How did the layoffs impact stock from the standpoint of big tech retaining RSUs of laid-off employees?
This would be a company by company question. It depends on each one, how much they buyback, etc
Great info as always, Matt! 👍🏼
Thanks!
Keep stacking wins! 😎✌️
Same to you!
nice education thx Matt
Ok, looking for your opinion. We both have MCD’s and when I saw their target misses I expected the them to drop, but instead they’re up 6%. Thank-you, but I don’t know why. What are your thoughts?
I'm talking about it in my video for tomorrow - market reaction is just a market reaction. Could be traders trading. Could be people thought they'd do worse so it was priced in. Who knows. Ultimately they need to fix their growth issues and get traffic back or the stock will continue to go down IMO. They also had a tough comp from last year's quarter, so let's see how they do going forward.
If your not selling a growth stock with no dividend, how do you actualize benefit of share buyback? Short rerm? Long term?
There's a couple ways to think about this. The benefit you get is a larger ownership stake in the business / claim to future cash flows. So if you have 100 shares of a company with a million shares outstanding, you own 0.01% of the shares. If they retire 100,000 shares, now you own 0.011% of the shares. That doesn't seem very helpful though.
The other way to think about the benefit is that companies that do buybacks can improve their earnings per share and free cash flow per share numbers. Even if the business isn't growing earnings, you can improve EPS by reducing the share count. If you're growing earnings and reducing the share count, then the EPS goes up even more.
Usually price follows EPS or cash flow growth. Ie, a company that reports 20% EPS growth is likely going to go up in terms of share price. Make sense?
@@mattderron sure does. Thanks for the awesome replies
McDonald’s is very cost inefficient in other countries like in Europe where you can eat very healthily for cheaper than in America because we have gardens and small grocery stores ran by people. We can afford better quality food than in America for less money than fast food. So in Europe they try to dress up these chains and make them seem like they are luxury
Matt MCD earning was bad 😢
They definitely had a rough quarter. I haven't dug into the call transcript yet to have an opinion on what's going on though
@@mattderron thx Matt
You could help by eating a big mac or two everyday
@@Blinky888 lol I did go mcd few time a week
@@Blinky888 they have 5 dollar meal going on right now very nice deal