When investors think of the two main ways they can achieve a return on their investment in the stock market, the classic buying low and selling high are at the top of the list, closely followed by dividend payouts. However, there is a third—much more efficient and beneficial—way that management can reward their shareholders.
The efficiency aspect beats dividend payouts for one simple reason. Dividends are paid through a company’s free cash flow (operating cash flow minus capital expenditures), meaning they are issued with capital that has already been taxed. Then, investors will also have to pay a tax on the payments they receive, making this double taxation not desired.
A more efficient way to reward shareholders is to use this free cash flow to buy back stock. This way, capital remains within the company to be reinvested in future growth and efficiencies and compound on itself for the future benefit of investors. Names like Barrick Gold Corp. (NYSE: GOLD) in the basic materials sector, Lyft Inc. (NASDAQ: LYFT) in the technology space, and even Tractor Supply (NASDAQ: TSCO) are subject to this compounding benefit today.
Why Barrick Gold Management Bought Back Stock
As of February 2025, Barrick Gold management decided to approve a new buyback program worth up to $1 billion, which represents roughly 3.2% of the company’s current market capitalization. When insiders decide to aggressively pursue a stock buyback, investors can typically assume two things.
First, these same insiders (who know the company's value better than anyone) think the stock is cheap enough to start buying at these levels. Second, they expect the business's current and future financial performance to continue at recent rates, if not stronger.
Considering the massive outperformance in the price of gold, it shouldn’t come as a surprise for investors to see this theme in action, as margins and bottom-line earnings per share (EPS) for Barrick Gold could be set to bring the stock's value much higher than where it is today.
This might be one reason why analysts at Raymond James decided to reiterate their outperform target on Barrick Gold stock as of February 2025, this time valuing it as high as $24 per share. This new target would not only call for a new 52-week high but also a net upside of as much as 30% from today’s prices.
Short Sellers Agree With Lyft Management’s Outlook
Over the past month alone, up to 13.3% of Lyft stock’s short interest collapsed to show investors a clear sign of bearish capitulation as these short sellers face the pressure behind all of the growth in this up-and-comer for the ridesharing industry.
As of February 2025, Lyft management announced that they will be buying back up to $500 million worth of their own stock, this one being more aggressive than Barrick Gold’s. Buying back as much as 9.3% of the company’s market capitalization carries the same conclusions investors could walk away from in Barrick, plus a few more.
One of them is how Lyft’s financials showcase a gross margin rate of 35.3% as of the past 12 months, allowing management to retain more capital from each sale to be reinvested more efficiently and lucratively. Noticing this commitment by insiders and capitulation from bears, others were also willing to act on this view for Lyft.
As of February 2025, those from Jacobs Levy Equity Management decided to boost their holdings in Lyft stock by as much as 15.1%, bringing their net position up to $120.5 million today, or 2.2% ownership in the company, another bullish factor for investors to consider today.
Tractor Supply’s Profitability Makes For a Wealth Compounder
Warren Buffett and other value investors typically look for a business that can generate high returns on invested capital (ROIC) rates, and Tractor Supply fits that description according to the company’s financials.
Over the past 12 months, the company delivered up to 15% in ROIC, beating the expected average annual returns from the S&P 500.
Knowing that the stock’s fair value could be much higher due to this factor, management decided to approve a buyback program of up to $1 billion worth of stock, even as it trades at 90% of its 52-week high today. Despite this bullish price action in Tractor Supply stock, one outstanding factor could lead it to potentially higher prices.
That is the current Wall Street earnings per share (EPS) forecast, shooting for up to $1.97 in earnings for the second quarter of 2025, a significant jump over today’s net $0.44 in earnings.
Considering that EPS growth typically drives stock prices, investors (and insider buyers) are in for a terrific future in Tractor Supply.
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The article "3 Companies Buying Back Stock – Why They’re Doubling Down" first appeared on MarketBeat.
