As of 11/20/2024   Indus: 43,408 +139.53 +0.3%     Trans: 17,002 -26.31 -0.2%     Utils: 1,055 +1.25 +0.1%     Nasdaq: 18,966 -21.33 -0.1%     S&P 500: 5,917 +0.13 +0.0%	YTD  +15.2%    +6.9%    +19.7%    +26.3%    +24.1%	Targets    Overview: 11/12/2024     46,000 or 43,000 by 12/01/2024   18,000 or 16,600 by 12/01/2024   1,075 or 1,000 by 12/01/2024   20,000 or 18,400 by 12/01/2024   6,100 or 5,800 by 12/01/2024
Chart Pattern Indicator: on 11/18/24

As of 11/20/2024   Indus: 43,408 +139.53 +0.3%     Trans: 17,002 -26.31 -0.2%     Utils: 1,055 +1.25 +0.1%     Nasdaq: 18,966 -21.33 -0.1%     S&P 500: 5,917 +0.13 +0.0%	YTD  +15.2%    +6.9%    +19.7%    +26.3%    +24.1%
Targets    Overview: 11/12/2024     46,000 or 43,000 by 12/01/2024   18,000 or 16,600 by 12/01/2024   1,075 or 1,000 by 12/01/2024   20,000 or 18,400 by 12/01/2024   6,100 or 5,800 by 12/01/2024
Chart Pattern Indicator: on 11/18/24

Bulkowski on Shares Outstanding

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

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

$ $ $

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.

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.

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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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

• Here are other fundamentals that may pique your interest.
• Best buy days. Which day of the week is the best one to buy or sell?
• Best buy months. Can buying at the end of the worst performing month and selling at the best performing be profitable?
• Dutch auction tender offers. Can you make money trading these?
• 10-baggers. Find 10-baggers using fundamental analysis.
• Value investing. How to Pick Stocks Using Fundamental Analysis.
• Holidays. Does the market rise or fall before and after holidays? Answer: Fall.
• Market cap. Chart patterns in small cap stocks outperform.
• Seasonality. What are the best months to buy and sell stocks?
• SEC Forms. What do they tell the trader or investor?

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