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Companies are gearing up for a plethora of share buybacks this year, but investors may want to look past the short-term boost for a potential sell signal.
"We expect companies will repurchase shares at a robust pace in 2015, and investors will reward these moves," analysts at Goldman Sachs, led by chief U.S. equity strategist, David Kostin, said in a note last week. But it added, "U.S. corporations should consider using their cash for other purposes."
S&P 500 stocks are trading at their highest price-to-earnings multiple in 40 years, excluding the tech bubble, Goldman noted.
"In 2007, S&P 500 firms allocated more than one-third of their cash use ($637 billion) to buybacks just before S&P 500 plunged by 56 percent. Conversely, at the bottom of the market in 2009 firms devoted just 13 percent of their annual cash spending to repurchases ($146 billion), " it said. "Like investors, many firms are poor market timers."
So far this year, S&P 500 companies have announced $265 billion worth of buyback plans, up 59 percent from the year-earlier period, Goldman said, adding it estimates buyback authorizations of $900 billion this year, up 4 percent from the 2007 peak.
Others are also concerned about the impact of cash heading to buybacks.
While both sales and earnings per share for S&P 500 companies are expected to rise around 2 percent on-year, total business sales actually fell in January and February, Uwe Parpart, chief strategist at Reorient Research, said in a note Sunday, citing the U.S. Commerce Department's business sales estimates.
He attributes the "cognitive dissonance" to stock buybacks reducing the number of shares outstanding, which plumps up per share sales figures, noting S&P data show around 47 companies have a lower share count in the first quarter compared with last year.
"We wouldn't want to pay more for the stocks of companies who think this is a great business strategy. The U.S. market remains a sell," Parpart said.
It's not a new concern. Last month, Larry Fink, chairman and CEO of BlackRock, which has around $4.65 trillion under management, wrote a letter to S&P 500 CEOs should eschew the market demands for short-term share price boosts and instead focus on longer-term growth.
"Too many companies have cut capital expenditure and even increased debt to boost dividends and increase share buybacks," Fink wrote. "Returning cash to shareholders should be part of a balanced capital strategy; however, when done for the wrong reasons and at the expense of capital investment, it can jeopardize a company's ability to generate sustainable long-term returns."
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter