Are Priceline and Qualcomm Wasting Your Money?
Stock buybacks are generally considered a bullish signal on Wall Street. They return capital to shareholders, while declaring management's belief that its own cheap shares are its best return on investment. As long as profits remain consistent, share repurchases can even increase earnings per share, by dividing the same amount of earnings among a smaller pool of shares outstanding.
Today, we'll find a few companies that announced new or expanded stock buyback programs, then consult Motley Fool CAPS to see which of those firms the 180,000-strong investor community favors most. If CAPS' top investors endorse the prospects of companies announcing buybacks, maybe Fools should take notice.
Here are two of the latest companies to announce share repurchase programs over the last month:
CAPS Rating (out of 5)
New or Expanded
|priceline.com (NAS: PCLN)||**||$166 million||New|
|Qualcomm (NAS: QCOM)||*****||$4 billion||New|
Source: Company filings.
But don't forget, Fools -- a company isn't obligated to repurchase shares just because it announced its intention to do so. So don't use this list as a reason to buy by itself; rather, use it as a launching pad for additional research.
On a wing and a prayer
Online travel agent priceline.com has already booked a flight to higher planes, with shares already trading 38% higher this year. Over the past five years, its stock has grown at a compounded rate of more than 65% annually, which isn't bad considering revenues have soared 31% annually since then and profits are up 70% a year. The question investors need to ask is: Has Priceline reached maximum altitude?
It's true that Priceline admits its growth rate will likely diminish going forward as more competitors challenge its leadership position. Expedia and Orbitz remain a constant threat, though one can easily argue they're a diminishing one as Priceline puts more mileage between it and them. Google's entrance into online travel might create an issue in airline reservations (though it's less dependent on the search king's reservation services than its rivals), but in hotel bookings the two companies are more partners than adversaries.
Although the buyback will be through privately negotiated, off-market transactions -- Priceline is also offering $875 million in convertible notes, buyers of which may be the primary sellers of stock -- it appears there's still more runway ahead for the company as it expands services globally. Having hesitated for so long because it always looked pricey to me, I've finally thrown my lot in with the travel agent and rated Priceline to outperform on CAPS.
Add Priceline to your Watchlist and let me know in the comments section below or on the Priceline CAPS page if my acquiescence at last is the ultimate signal it's reached a top or simply something I should have recognized a long time ago.
Chipping away at the competition
Qualcomm's growth has also been strong, though it's no Priceline this year or even historically. Shares are up 17% in 2012, and have grown at a compounded rate of 11% over the last five years. Revenues and profits have grown at 16% and 12%, respectively.
Yet I think we're only just getting into Qualcomm's real growth phase. It's the 800-pound gorilla in tech these days, with its chips not only in Apple products, but also Android and Research In Motion's BlackBerry. So regardless of which platform ultimately wins the race, Qualcomm is there riding its coattails. Its new Snapdragon chipset is looking to be a huge leap forward.
Highly rated CAPS All-Star yooperking thinks that not only are there new advances coming Qualcomm's way, but they haven't been priced into the stock yet.
Trading at a Forward P/E ratio of 14.91, a PEG ratio of only 1.04 and with only 81.80% institutional ownership this stock has a lot of room to move higher. 340 devices are now using Qualcomm's Snapdragon chips and another 400 are in development, including 120 in design using top tier Snapdragon S4.
So add Qualcomm to the Fool's free portfolio tracker to keep track of its pace of change, and let us know on the Qualcomm CAPS page if you think its price today will look quaint five years down the road.
Sign up for CAPS today and share your best pitch for why a company buying back its shares is a reason for you to buy too -- or not!
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned.Click hereto see his holdings and a short bio. The Motley Fool owns shares of Apple, Qualcomm, and Google.Motley Fool newsletter serviceshave recommended buying shares of Google, Apple, and priceline.com, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.