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Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

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Bulkowski's Shares Outstanding

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My book, Fundamental Analysis and Position TradingFundamental Analysis and Position Trading: Evolution of a Trader book., pictured on the left, has a chapter on shares outstanding starting on page 85.

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This page reviews a study concerning the stock performance of companies with growing and shrinking shares outstanding.

Shares Outstanding: Summary

Value Line defines common shares outstanding as "the number of shares of common stock actually outstanding at the end of a company's accounting year. This total excludes any shares held in the company's treasury."

The idea behind looking at shares outstanding is to discover what happens to the stock's performance when the number changes. If the company buys back shares, the earnings per share will rise. If they issue more shares, they will have more money, but the earnings per share will drop (all else being equal). If they invest that money in the company and increase value, the share price should rise.

I discovered that higher shares outstanding leads to better performance for the first 3 years of a 5 year span.

Drilling down into the first year's results shows that as the percentage of shares outstanding increases, performance decreases. As the percentage of shares outstanding decreases, the stock's performance increases.

Shares Outstanding: Methodology

I used the Value Line investment survey and typed in their shares outstanding numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.

After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.

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Shares Outstanding: Results

The following table shows the stock performance over time of companies with increasing or decreasing shares outstanding.

1 yrSamples2 yrsSamples3 yrsSamples4 yrsSamples5 yrsSamples
Higher10.20%112912.40%103512.40%93913.50%83413.40%716
Lower 9.70%55110.60%47312.20%40514.00%35413.60%317

For example, the first year after companies issued more shares, the stock gained an average of 10.2%. Those buying back their shares outstanding saw price rise by 9.7% over the coming year. Two years later, the average rise measured 12.4% and 10.6%, respectively.

In three of five years (60%), companies raising the number of shares outstanding showed better stock performance over the coming one to five years than did those companies buying back their shares.

This finding goes against the commonly held belief that fewer shares outstanding results in better performance, but it may be a matter of degree. The table does not show how large or small the change in shares outstanding was. The next table takes a closer look at the performance one year after the report of shares outstanding and stock performance as a multiple of the median change in shares outstanding.

Increase> median 1.6%Samples
1x8.4%567
2x7.0%360
3x6.1%271
4x6.0%228
5x4.9%208

The above table shows the average performance of stocks a year after companies raise the number of shares outstanding by multiples of the median 1.6%. For example, those companies that increased their shares outstanding by at least 1.6% saw price climb an average of 8.4% the following year. Those with share increases of twice 1.6% (or 3.2% or higher), saw price climb an average of 7%, and so on down the table. The last row show the performance of stocks issuing more than 5 x 1.6% or 8% of shares.

The trend shows that as the size of the stock issuance increased, performance decreased.

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Decrease> median 2.5%Samples
1x9.3%261
2x17.2%116
3x25.6%58
4x21.3%32
5x21.1%22

The table shows the performance of stocks one year after the companies bought back shares. The median decrease in shares outstanding was 2.5%. For example, companies buying back 2.5% or higher shares saw their price climb by 9.3% a year later. Companies that bought back at least 5% of their shares outstanding (the 2x row) had price rise an average of 17.2% in the next year, and so on down the table. Please note that after 3x, the samples become few so the numbers may not be reliable.

These two tables show that companies buying back a significant number of shares tend to do well a year after the buyback and those that issue a lot of stock tend to do poorly.

-- Thomas Bulkowski

See Also

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Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Sign you have a drinking problem: You lose an argument with an inanimate object.