Earnings-per-share has outpaced the growth of net income, illustrating some of the effects of rapid buyback growth.
One market condition to monitor is the ever-popular Earnings-per-share (EPS) and its relationship with its components. EPS is the calculation of net income per share of common stock outstanding. Growth or decline in this key metric is defined by the subsequent growth/decline of net income (numerator), share issuances and share repurchases (denominator driver). Distinguishing between the two is key to understanding what drives changes in EPS.
Between 2009 and 2020, EPS, net income and buybacks have experienced CAGR’s of 13%, 12% and 28%, respectively. According to S&P Dow Jones Indices, ~1 of 4 companies in the S&P 500 receive significant (>4%) EPS boosts from buybacks. The relationship between the growth of EPS and the growth of Net Income helps to quantify the effect of buybacks and share count reduction in the market.
Data sources: S&P Dow Jones Indices, Guzman & Co.
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