There is the interesting return of a debate about share buybacks, as they have reached new all-time records, amounting to USD 1 trillion in 2024 and contributed to the US budget USD 7.4 billion through taxes on buybacks introduced in 2023. That’s roughly 2% of the entire US market capitalization. Last year’s buybacks where lead by Mag7, followed by large banks. Apple lead the pack with over USD 100 billion of stock buybacks.
Debate is that many board of direcors do not adjust the EPS targets for the buy back policy. The EPS which is the main driver of the management compensation can be increased by simply reducing dominator which is by buying back the outstanding shares. This is an easy way for the management to hit their EPS target, without taking effort to grow earnings. What makes this even easier for them, they have direct decision over the timing of the buyback. Stock buyback should be treated similarly to dividend as a way of returning excess cash to shareholders. In addition it provides them with flexiblity of asset allocaiton, meaning they can buy the stock when the timing is favourable (when the company shares are much below the intrinsic value of the company). The management has all insider information at their disposal that should allows them to correclty calculate instinsic value of their buisness and act accordingly. However sometimes insiders are selling into the buyback, which contradicts the idea that price is cheap. Sometimes the orgnial justification for buybacks (to return excess cash to shareholder) is completely forgoten. We saw in in 2021 when many companies where borrowing to then buy bak their shares at the peak valuations.