In 2015, O’Shaughnessy Asset Management put out a research paper discussing stock buybacks.
Summary:
In “High Conviction Buybacks,” O’Shaughnessy Asset Management (OSAM) examines the impact of corporate share repurchases on stock performance, emphasizing the significance of the magnitude of buyback programs. The study categorizes companies based on the percentage of shares repurchased: low conviction (0–5%), higher conviction (5–10%), and highest conviction (over 10%).
OSAM finds that while most buyback dollars are spent by low conviction firms, those with higher conviction repurchases—especially those exceeding 10% of shares—tend to outperform the market. Notably, about half of high conviction buybacks occur when a company’s stock is in the cheapest quintile of large stocks, suggesting that these firms are repurchasing shares at favorable valuations. The research indicates that investing alongside high conviction buyback firms can offer a potential edge, as these companies have historically delivered superior returns.
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