Originally Posted by
TED74
I'm trying to get smarter on this phenomenon - buying one's stock back, using excess cash (or borrowing it), to prop up the stock price and boost EPS. Having poured billions of our resources into buybacks, why isn't the stock higher? When I compare DAL to some major indices over 5 years we've been buying stock back, we underperform significantly. Why? Are buybacks justified with this performance?
5-yr performance of DAL is +39% (nearly identical to GOL at 38%)
S&P 500 is +46%
Dow Jones +53%
Nasdaq +77%
Interestingly, UAL is up almost 91% and LUV is up 85%. FDX is up only 7% and AAL is down 31% over the same time period.
We are beating the FTSE 100 and 250, so at least we're not as toxic as Brexit?!
Many of those other companies (AAL included) have also been spending Billions on their own stock buyback. The general logic is to buy your stock when you feel it's undervalued and you have excess cash without a better plan for investment.
Many an article has been written on both sides as to the efficacy of a company buying back it's own stock with excess cash.
Many see the fact that much of CEO's pay in recent decades has been tied to stock performance thereby clouds Mgmt's opinion of buying back it's own stock to reduce supply and drive up the demand/price.