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It's also very common now for companies to buy back a ton of stock thus lowering the share denominator in the earnings portion of the ratio, while not actually
by prklmn 9y ago
It's also very common now for companies to buy back a ton of stock thus lowering the share denominator in the earnings portion of the ratio, while not actually growing revenue much if at all.
- hidenotslide 9y agoYou are referring to Earnings/Share, not Price/Earnings. It doesn't matter much anyway, if they can make the same amount of money with less invested capital that should increase their metrics. And there are good tax reasons to prefer share buybacks over dividends as a way to return cash to shareholders.
- prklmn 9y agoI was referring to both because EPS is wrapped up into P/E... P/E = stock price / (earnings / # of shares oustanding) And it actually does matter because a company can steadily grow EPS while not growing revenue meaning that something might be amiss, but it can easily be overlooked because EPS has been growing. Also, there are plenty of reasons not to want buybacks. Many times companies will buy their stock when it's at highs, thus destroying value for shareholders.