This article will review four companies that recently announced stock buybacks. Companies will sometimes buy back their own stock to reduce the outstanding shares and increase earnings per share. Wells Fargo & Company (WFC) announced a 200 million share stock buyback on March 20, 2011. Stock buyback announcements will often cause a stock’s price to go up, however in the case of Wells Fargo the stock price has gone down. Here is our analysis of recent buybacks:
Travelzoo Inc. (TZOO): Travelzoo has a market cap of $540.41 million with a negative price to earnings ratio. The stock has been trading in a 52 week range of between $14.06 and $103.80. The current stock price is $32.83. Travelzoo reported second quarter revenues of $37.6 million with net income of $4.92 million. In the second quarter of 2010, revenues were $28.1 million with net income of $3.25 million.
One of Travelzoo’s closest competitors is Expedia Inc. (EXPE), which is trading at $27.54. Expedia has a price to earnings ratio of 17.70 and a profit margin of 12.09 %, compared to Travelzoo Inc. which has a negative price to earnings ratio and a profit margin of -1.23%.
With the exception of the first quarter of 2011, Travelzoo Inc. has been a profitable company. Over the last four quarters, the company has increased revenues by 35%. In spite of continued revenue growth, the stock price dropped by 46% after a disappointing second quarter earnings report. On August 21st, the company exhibited confidence in its ability to grow earnings by announcing a 500,000 share stock buyback. On July 21st, stock analyst Jim Cramer commented on the stock and said that Travelzoo was the cheapest stock in its universe based on its price to earnings to growth (PEG) ratio. The stock has a price to earnings growth ratio of 1.14. I think that Travelzoo management's willingness to buy back stock is a good sign. I also believe that this company will be able to grow both revenues and earnings. I rate Travelzoo Inc. as a buy.
Demand Media Inc (DMD): Demand Media has a market cap of $688.72 million with a negative price to earnings ratio. Over the last 52 weeks, the stock has traded between $7.12 and $27.38. The stock is currently trading at $8.80. Demand Media Inc. reported second quarter revenues of $79.5 million, up from $32.6 million in the first quarter of 2011. Second quarter net income was $-2.37 million, up from $-8.06 million in the first quarter. Year 2010 earnings increased to $-22.4 million from $-$38.6 million.
One of Demand Media’s primary competitors is Yahoo (YHOO), which is currently trading at $13.00. Yahoo has a price to earnings ratio of 14.73 with a profit margin of 20.97%. Demand Media Inc. has a negative price to earnings ratio with a profit margin of -2.43%.
Demand Media’s initial public offering was on January 25, 2011. This is a relatively new company that has never turned a profit. The company is in the web content business and faces very tough competitors like Yahoo and AOL Inc. (AOL). On August 22nd, the company authorized $25 million for stock repurchases. I think it is too early to get a satisfactory read on this company, and I would like to see it make a profit. I rate Demand Media as a hold.
Lowe's Companies Inc. (LOW): Lowe's Companies Inc. has a market cap of $13.99 billion. The stock has traded in a 52-week range of between $18.07 and $27.45. The stock is currently trading at $20.12. On August 15th, the company reported second quarter earnings for the fiscal period ending on July 31st. Total revenues were $14.5 billion and net income was $830 million. That compares to the second quarter of 2010 when revenues were $14.4 billion with net income of $832 million.
The company's closest competitor is Home Depot (HD), which is trading at $33.81. Home Depot has a price to earnings ratio of 15.23 and a profit margin of 5.23%. Lowe's Companies has a price to earnings ratio of 13.80 with a profit margin of 4.06%. Over the last 52 weeks, the stock price of Home Depot has increased by 19.19% while the stock of Lowe's Companies is down by 0.49%.
Lowe's has had relatively stable earnings for years. Over the last three years the stock price is down by 16%. On August 22nd, the company announced that it was authorizing a five billion stock buyback. I like to see stock buybacks, but apparently investors were not impressed, because since the announcement the stock price has barely moved. That might be because the company recently lowered its annual earnings projections. I think that Lowe's is a strong company. However, if I were to invest in a home improvement company, I would invest in Home Depot which is the best of breed. I rate Lowe's Companies as a hold.
NetApp Inc. (NTAP): NetApp has a market cap of $14 billion The stock has traded in a 52 week range of between $33.32 and $61.02. The stock is currently trading at $37.99. On August 15th the company announced second quarter earnings for the fiscal period ending on July 31st. Revenues were $1.46 billion compared to $1.41 billion in the second quarter of 2010. Net income was $140 million compared to $142 million in the second quarter of 2010.
One of NetApp’s competitors is technology giant EMC Corporation (EMC) which is trading at $21.15. EMC has a price to earnings ratio of 22.15 with a profit margin of 11.45%. That compares to NetApp which has a price to earnings ratio of 22.94, and a profit margin of 12%.
On June 27th, NetApp announced that it would initiate a $200 million stock buyback. The stock is currently 38.7% off of its 52 week high. However, the company has a three year earnings per share growth rate of 29% and has increased net income in three of the last four quarters. The company did not have strong second quarter earnings, but that is not uncommon for technology companies. I think that the stock buyback is an indication that management thinks that with a price to earnings ratio of 23 that this stock is cheap. This is a company that has enjoyed steady growth until the last quarter. I think that the growth of cloud computing and social media will help this company continue to grow. I rate NetApp as a buy.