I think buybacks done in the "overvalued" situation you're talking about are frequently done not with the goal to return capital to shareholders, but instead to offset stock-based comp for management. No argument from me that it's a good use of capital, but I think that's how the management teams and boards justify it to themselves.
No capital allocation choice is always good or bad. It always depends on the situation, opportunity costs, etc.
Your sense is correct but also a serious view. Wall street rewards stock buybacks, often at any price and even, in some cases, stock splits. If you are a ceo, what would you do? Do an accelerated share repurchase at high prices or reinvest in the company's business and perhaps wait years for a return?
This is why having good management in place is so important. The best we can do is look at their past capital allocation record, and how the incentive structure is set up to make an educated guess on what they'll do in the future.
They are especially beneficial when companies' shares are trading at record highs and likely "over-valued" when a large number of buybacks occur.
I sense sarcasm 😀
If you haven't read it yet, you'd likely be interested in the Mauboussin paper I linked in response to Miguel's comment as well.
https://www.morganstanley.com/im/en-us/individual-investor/insights/articles/which-one-is-it-equity-issuance-retirement.html
I think buybacks done in the "overvalued" situation you're talking about are frequently done not with the goal to return capital to shareholders, but instead to offset stock-based comp for management. No argument from me that it's a good use of capital, but I think that's how the management teams and boards justify it to themselves.
No capital allocation choice is always good or bad. It always depends on the situation, opportunity costs, etc.
Your sense is correct but also a serious view. Wall street rewards stock buybacks, often at any price and even, in some cases, stock splits. If you are a ceo, what would you do? Do an accelerated share repurchase at high prices or reinvest in the company's business and perhaps wait years for a return?
This is why having good management in place is so important. The best we can do is look at their past capital allocation record, and how the incentive structure is set up to make an educated guess on what they'll do in the future.