Corporate stock buybacks are usually touted as good for investors – it’s typically one of the top demands that activist investors make when targeting a company.
But while stock buybacks can benefit current shareholders, they tend to distort a company’s earnings picture – which can mislead potential investors.
What’s more, stock buybacks often are a poor use of cash compared to capital expenditures and research and development – investing in the business. And that type of spending has waned.
Stock buybacks aren’t necessarily a bad idea – it often makes sense if a company has a lot of excess cash – but in the past few years, more and more companies have used them to boost their earnings per share (EPS) numbers.