Market Insider

Buybacks boost earnings, as valuations rise, profits lag

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As stocks rallied to record levels, corporate America has been announcing share buybacks at a near record pace, supporting richer stock prices for companies with low single-digit percentage earnings growth.

"There's no doubt that stock buybacks have helped boost EPS [earnings per share] growth, although you could make the case that as long as companies are buying back their stocks, people should do it as well," said Daniel Greenhaus, global market strategist at BTIG.

Buybacks are in focus at a time when expectations for slow earnings growth, along with rising valuations have become a topic of debate. So far, earnings for the third quarter have grown around 4 percent, and the price to earnings ratio of the S&P 500 is now close to 16.5, above its long-term average of 15.8. Some analysts see the market as now fairly valued versus earlier in the year, when the PE was much lower.