When buying ASX shares, a key consideration is the price, as paying too high a price can lead to poor investor returns and capital erosion.
The price paid per share is an important consideration not only for individual investors, but also for companies implementing share buy-back programs. Like an investor, if a company pays a price that is above fair value for its own shares, it will reduce its overall wealth.
In order to prevent loss of wealth, companies should only implement share buy-back schemes if their shares are available for a fair price. If this is not the case, dividends might be a more appropriate means of returning excess capital or profits to shareholders.
With this in mind, here is a list of 4 ASX companies currently undergoing a share buy-back program. If my logic holds, these companies should each have a management team that views its shares as at least fairly priced.
ASX companies undergoing share buy-back
- Aurizon Holdings Ltd (ASX: AZJ) – trading at $5.90 per share.
- BlueScope Steel Limited (ASX: BSL) – trading at $12.47 per share.
- Computershare Limited (ASX: CPU) – trading at $15.90 per share.
- Scentre Group (ASX: SCG) – trading at $3.92 per share.
The management teams of these 4 companies may believe that now is a good time to buy. Unfortunately, this type of assessment does not guarantee strong investor returns into the future.
For me, the fact that these companies are buying back shares instead of funding growth is a cause for concern. Additionally, I like to invest in companies with low debt and a track record of high return on equity. These two factors are enough to make me weary of an investment in Aurizon, Computershare and Scentre.
Bluescope Steel’s recent financial performance does make it a more appealing investment alternative. However, its future performance will likely be tied heavily to the price of the commodity it sells, making investor returns hard to predict. Without a better understanding of the steel market I won’t be investing in Bluescope either.
Unfortunately, despite what may be cheap prices I won’t be investing in any of the 4 companies listed. However, I still believe the concept of share buy-backs is important to understand and that it can be useful in assessing value.
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Motley Fool contributor Mitchell Perry has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Computershare and Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.