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Share Repurchase, The Shareholder's Delight: Shrinking Shares Outstanding & Soaring Earnings Per Share.

Updated: 5 days ago

Table of Contents

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

 

KEYPOINTS

  • Discover growth potential: Discover how to identify companies primed for success by looking at their shares outstanding & EPS.

  • Bigger slice, bigger profit: Learn why a decrease in shares outstanding combined with rising EPS can be a recipe for shareholder delight.

  • See beyond buybacks: Understand the difference between share repurchases and total shares outstanding to make informed investment decisions.



Today, we're diving into a strategy for identifying companies with promising near-to-medium-term growth potential.

We'll be focusing on two key metrics: decreasing shares outstanding and increasing EPS (earnings per share) as a result of Share Repurchase (also known as Share buybacks).


Why is this combination so attractive?

Imagine a company's profit is like a delicious pastry. Now, imagine cutting that pastry into fewer slices. Each slice, representing a share of ownership (EPS), becomes bigger! That's exactly what happens when a company's shares outstanding decrease while EPS increases.


But wait, there's more! It's important to understand the difference between share repurchases and total shares outstanding. Companies often use share repurchases (buying back their own stock) as a way to show confidence in their future. This can be a positive sign, but it doesn't always translate to a decrease in total shares outstanding.


Focus on the Bigger Picture: Total Shares Outstanding

For a clearer picture, we want to see a downward trend in the total number of shares outstanding. This signals that the company is actively managing its capital structure and potentially prioritizing shareholder value.


Fortinet's shares outstanding is on a decreasing trend in the last 10 years.
Fortinet's shares outstanding is on a decreasing trend in the last 10 years.
Fortinet's EPS is on a increasing trend in the last 10 years.
Fortinet's EPS is on a increasing trend in the last 10 years.

(Note): When Looking at EPS, Look for EPS Diluted figures, Not Basic

Diluted EPS takes into account all potential sources of share dilution, like stock options and convertible securities. This gives a more conservative and realistic view of the company's profitability per share, especially for established companies with a history of issuing new shares or offering stock options.



Giants Taking Bigger Bites: Share Repurchases for Mature Companies

Large, mature companies like Microsoft and Apple often use share buybacks to reduce their outstanding shares. This has a clear benefit: their diluted EPS and stock prices have seen significant increases.

This demonstrates how strategically executed share buybacks can truly enhance shareholder value.


Microsoft's decreasing Shares o/s & increasing EPS and Stock price in the past 20 years
Microsoft's decreasing Shares o/s & increasing EPS and Stock price in the past 20 years
Apple's decreasing Shares o/s & increasing EPS and Stock price in the past 15 years
Apple's decreasing Shares o/s & increasing EPS and Stock price in the past 15 years

A Word of Caution: Not All Rising Share Counts are Bad

Don't automatically dismiss companies with increasing shares outstanding. Look at the bigger picture. If a company like Axon shows strong and consistently improving fundamentals (revenue, cash flow, profit margins), the impact of a rising share count might be less significant. Additionally, a rising EPS can further mitigate concerns about increasing shares.


Where can you find these information?


Head over to financecharts.com

Under "Charts" > you can easily access both "Shares Outstanding" and "EPS Diluted" under "Others Charts."


Alternatively, on stockanalysis.com

look under Financials > Income Statement for both the

i) Shares Outstanding (Basic)

ii) EPS (Diluted)



iii) Company's SEC filings

Depending on which is the latest filing,

you can find more details on the 10-K/ 10-Q filings


a) in the 10-K, you will want to look under "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities"

Fortinet's 10-K table of contents
Fortinet's 10-K table of contents

look under "Purchases of Equity Securities by the Issuer and Af iliated Purchasers" > "Share Repurchase Program"


b) in 10-Q filings,

you will want to look under

"Notes to Condensed Consolidated Financial Statements" >


then look under heading

"EQUITY PLANS AND SHARE REPURCHASE PROGRAM" > "Share Repurchase Program"


Here you will find useful information such as the:

  1. Announcement date

  2. Announced Completion date

  3. Status

  4. Target / Remaining amount, etc



Conclusion

By combining this criteria into your stock picking process, you can identify companies with the potential for healthy growth, setting your portfolio up for success.

Remember, this is just one piece of the puzzle. Always conduct thorough research on the companys's fundamentals before making any investment decisions.



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