Logically, these theories are frequently broken by reality. The opportunity in the case of takeover bids or the perennial drought that the Spanish stock market is experiencing in stock market debuts, even though prices are soaring and the Spanish market was the world star of equities last year.
Apparently, now the repurchase of securities would not be the most appropriate operation by companies, considered as another type of remuneration similar to the dividend. The indices continue to set all-time highs and many company prices are also at their highest levels. The question would be whether, for example, technology companies or banks are buying their shares at a time when securities are expensive? A recent Goldman Sachs report justifies the current prices, although it highlights that «“All major equity markets are now trading at valuations well above their long-term averages.”
Last year’s figures of good performance of world stock markets are also spectacular in terms of the acquisition of shares. JP Morgan estimates a total volume of 1.9 trillion dollars with growth that exceeds double digits compared to 2024. And the protagonists of these acquisitions have been banks and technology companies as large cash generators.
But are they expensive? In the recent presentation of results, the president of BBVA, Carlos Torres announced that at the end of the year he would decide on 2,800 million surplus euroseither to repurchase shares, although it did not rule out giving an extraordinary dividend. The choice of one or another option will depend largely – as the executive said – on whether BBVA’s stock continued to rise. Torres considered that BBVA is currently cheap with a PER of around 11 times earnings, despite the very strong rise in the share – close to 40% – after the failure of the takeover bid launched by the entity for Banco Sabadell.
And this is one of the advantages of share buybacks since se can reduce or eliminate the program without excessively harming the actionsomething that does not happen with dividends: the announcement of the withdrawal of these payments represents a debacle, at least temporary, for the securities. And another consequence is that the companies that buy back consider that the stock is undervalued, sending a signal of confidence to investors. The investor benefits from the improvement in stock ratios with growth in earnings per share and dividend if things continue to go well in the company. And it is not necessary to obtain a greater benefit, so this improvement is something accounting, perhaps artificial.
However, the moment of euphoria that the stock markets have experienced, now with more lateral movements, may not be best suited for buybacks. If the stock ends up falling, they destroy value. And it is always questionable not to try to allocate that money to acquisitions or investments in the business that achieve adequate profitability.
As securities do not exist in the stock markets, we are at an interesting time to see if these buybacks meet the objectives pursued or, on the contrary, end up causing a loss of value for the company itself . Only time will solve the enigma. Buyback programs are as generous lately as the revaluations achieved in recent years. From the other side of the Atlantic, technologies such as Meta and Amazon have stopped their share buybackswhile Alphabet (Google) reduces them by 64%. There is a clear reason here: investments in Artificial Intelligence.