Davide Semilia @DavideSemilia: "Corporate buybacks are hiding an..."

Italy

Corporate buybacks are hiding an earnings recession in plain sight S&P 500 earnings per share grew 8% last quarter. Sounds healthy, right? Now remove the effect of share buybacks and that number drops to 2%. Wall Street celebrates EPS beats while ignoring that companies spent over $230 billion on repurchases in Q1 alone. They are not buying back shares because business is booming. They are doing it because organic revenue growth has stalled and financial engineering is the easiest way to keep the EPS machine running. Look at the disconnect. Operating margins for the median S&P 500 company have compressed for three straight quarters. Free cash flow conversion is declining. Yet the per-share numbers keep climbing because the denominator keeps shrinking. This is not a sign of strength. It is a sign that management teams see fewer productive places to deploy capital. When a CEO chooses buybacks over capex, they are telling you the future looks worse than the present. The stocks most aggressive on repurchases tend to be the ones with decelerating top-line growth. Check the financials beneath the headline EPS and you will find a very different story than the one analysts are pitching. I have been trimming positions in heavy-buyback names and rotating toward companies reinvesting in actual growth. The EPS illusion works until it doesn't 📉 $SPY (State Street SPDR S&P 500 ETF) $AAPL (Apple) $META (Meta Platforms Inc) $HD (Home Depot Inc) $LOW (Lowe's Companies Inc)

Not investment advice. The author may have financial interests in the mentioned instruments.