Do Share Buyback Programs Offer the Same Value as Organic Growth?


Jun. 9 2015, Updated 9:06 a.m. ET

Do investors need buybacks to reap returns?

In this article, we’ll look at the performance of top stocks in the technology sector that have not concentrated heavily on share buyback programs. Stocks with impressive returns include Amdocs (DOX), CGI Group (GIB), and EPAM Systems (EPAM).

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Take a look at a performance summary for Amdocs (DOX):

  • one-month return – -1.97%
  • year-to-date return – 16.65%
  • one-year return – 14.3%
  • three-year return – 93.23%

The company comfortably outperformed the S&P 500 Index as well as peer company VMWare. Its EPS (earnings per share) growth is 8.8% on a YoY (year-over-year) basis. It has bought back shares worth $734 million over the last eight quarters.

Amdocs makes up 0.24% of the iShares U.S. Technology ETF (IYW).

CGI Group

Take a look at a performance summary for CGI Group (CGI):

  • one-month return – -5.63%
  • year-to-date return – 10.8%
  • one-year return – 23.9%
  • three-year return – 109.5%

This company has also outperformed the S&P 500 Index as well as peer company Computer Sciences. The firm has issued more equity than buybacks in the last three years. CGI Group is creating long-term shareholder value through capital expenditure instead of with share buybacks.

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EPAM Systems

Finally, here’s a look at a performance summary for EPAM Systems (EPAM):

  • one-month return – 10.22%
  • year-to-date return – 49.78%
  • one-year return – 72.67%
  • three-year return – 321%

EPAM has outperformed the S&P 500 Index as well as peer companies Accenture and Infosys. The firm has issued more equity than buybacks in the last three years.

What’s best: Share buybacks or organic growth?

In this series, we have discovered that both share buyback programs and sustained long-term earnings and revenue performance can increase shareholder value.

Given the uncertainties of the current market, including low interest rates, a strong dollar, and a cheap credit environment, technology companies are exposed to more and more volatility, even as markets continue to expand.

In such a complex market, you’d be better off investing in high-growth stocks that provide exceptional returns than in mature tech firms that offer stock buyback programs. The only firm that is successfully increasing investor value through share buybacks is Apple, and it enjoys plenty of organic growth as well.

Analysts contend that firms can only use buybacks to increase investor returns to a certain extent. IBM is a case in point. The firm is reducing its share buyback program, as less than 1 billion shares are left outstanding. Companies should focus primarily on innovation and capital expenditure to assure long-term growth.


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