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A cannibal share is a share issued by a company that buys back a large number of its own shares. Let's say you own shares in a company with earnings of $10 per share. If the company buys back 50% of its outstanding shares, earnings per share (EPS) will rise from $10 to $20. Theoretically, the share price should also double, reflecting this increase in EPS.
It's crucial to stress that share buybacks only create value when the stock is undervalued. Indeed, buying back one's own shares can be seen as an investment in the company itself. Similarly, as an investor, you look to acquire shares when they are undervalued.
Share buy-backs are often interpreted as a sign of confidence on the part of management, indicating that they believe in the intrinsic value and financial strength of their company. However, it is essential for investors to carry out their own analysis to determine whether stocks are indeed undervalued before considering buybacks as a positive signal.
Cannibal stocks" can represent an attractive opportunity for shareholders who see their stake in the company increase through share buybacks. Nevertheless, the assessment of the undervaluation of the shares remains a decisive factor if these buybacks are to translate into real value creation.
We have created a thematic list of the 52 best cannibal stocks. These companies regularly buy back a significant proportion of their outstanding shares at strategic prices.
Among the companies identified, let's take the example of AutoZone, which has been massively buying back its own shares for years with a genuine strategy of returning value to shareholders. While this may sound simple, managers often fall into the trap of prioritizing growth, even at extreme costs (usually through acquisitions), over buying back their own shares.AutoZone bought back 84% of its outstanding shares between 1997 and 2022. Over the last decade, 93% of operating cash flow has been used for share buy-backs. The number of shares fell from 32.6M in 2014 to 18.1M in 2023.
Source : Quartr
