Buybacks that do look wasting money

Occasionally see stocks that hit 52-week high without particular news or fundamental improvement. Of course, when the Dow hit all-time high non-stopping like what is happening now, people may overlook the fundamentals and focus on prices.

Here is an example. One defense company announced buyback in 2013. Then the stock broke multiple-year highs. Considering that the industry's uncertainty (indeed short interest on this company has spiked around the time of the buyback announcement) and limited growth perspectives in the coming years (usually defense companies have stable ROI), the buyback might be a tool to fight back the bears. There is nothing wrong if so. Another possibility is the company doesn't know how to use cash on hand except paying dividend and buyback.

The question is, we may ask the question had been asked many times, is the buyback worth?

CNBC reported that someone might have answered this question:

In what may be the best report ever on stock buybacks, accounting and tax analyst David Zion had this sobering comment: After reviewing the $2.7 trillion in buybacks by the S&P 500 from 2004 through 2011, “it looks like most of the buybacks by the S&P 500 over the past eight years have not yet added much value for remaining shareholders.”... The two biggest spenders are IBM ($90 billion) and Hewlett Packard ($61 billion.) Over the eight years of the study IBM post an annualized return of 15.3 percent while Hewlett Packard produced an annualized loss of 11.3 percent.

Counting the crisis in 2008/09 seems biased to conclude that buybacks are wasting investors' money since many are still way below their highs. However, these are the companies that know their financial conditions better than anyone else. They always have the right to say "not to buy" or "buy at what price". There is a need to show capital efficiency. This is their call but investors' judgment. In general, if companies buy back stocks at 52-week high, we may be careful what the companies are trying to do. In the end, staying away the game they are trying to pay with our money is always right in personal opinion. If the company is the only bull, be cautious. We need some consensus to verify our investment.

Then how do we know if the company is in buyback? Not easily answered in general. But the particular company at the beginning is easier to spot: the volume spiked up when 52-week high was reached and is considerably higher then average volume in spotty manner. This may well mean there is additional buying force participated from the company itself.