Tuesday, February 12, 2019

Do stock buybacks make sense? Consider the sales outlook

Companies’ spending on stock buybacks can be judged by their prospects for revenue growth, according to Aswath Damodaran, a finance professor at New York University and author of four books on valuation. Damodaran made the case in a blog post Friday that focused on components of the S&P 500 Index. He separated them into five groups, based on the sales outlook for the next two years. Last year’s buyback outlays by the group with the slowest growth rate amounted to 4.76 percent of its year-end market value. The comparable figure for the group with the brightest outlook was just 0.95 percent.

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