The stock market reflects buybacks – not improving earnings
The analysts are starting to notice.
Stock buybacks have been one of the leading results of the Rethug tax theft bills last year. Buybacks have the impact of pushing money out to the investor class and also does two very nice things for them.
First, in a number of instances, long term capital gains are taxed at lower rates than dividends. Meaning that even less of the tax give away gets recaptured for communal use when it gets shoveled to hedge funds.
But, second, it also raised the earning per share of the stock itself — without requiring any growth in revenue or earnings. Sorry, but here we have to do math.
If a company had 10 shares of stock and $100 dollars in earnings, it would earn $10 dollars per share. Assume the stock is worth $100 dollars (yes, I know the ratios are bad but it makes the math REAL easy) and you spend $100 to buy a share back, now you have 9 shares.
Next year, even if you only have $100 dollars in earning, you now have $11.11 dollars per share earnings. Voila, a 10% increase in earnings per share without any new revenue or total earnings.
This is what analysts are starting to look at — what will earnings do when the tax benefits (especially the repatriation of foreign money) flatten out and stock buybacks diminish. Stock prices go up based on GROWTH of earnings — flat earnings = decreasing stock prices.
Isn’t it convenient that the buybacks are peaking in Q3 of this year — just before the midterms?
Want an analyst story on this? Here is one, “Corporate Buybacks, The Illusion of Profits And The Looming Disaster For Your Portfolio” — it is in Forbes, not normally considered part of the “fake news” by the Rethugs.
But don’t think they will last to 2020. That will be a whole ‘nother story.
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