Some stocks require more liquidity than others. Investors in Berkshire Hathaway, Inc. (BRK.A) don’t particularly require millions of shares traded on a daily basis.
However, one company that could use quite a bit more liquidity in its shares is AutoZone, Inc. (AZO). This stock has been a rocket of wealth creation and looks to have continued price momentum.
The position just bounced off an all-time record-high of around $547.00, which, to some, might just be too high of a per-share price. The stock only trades around 340,000 shares a day on average, which is pretty low considering the company’s market capitalization is just more than $18.0 billion.
The stock has doubled over the last three years and has quintupled over the last five and a half.
For all the hype, however, the company is delivering the goods. In its second fiscal quarter of 2014 (ended February 15, 2014), total sales improved 7.3% to $2.0 billion. Domestic same-store sales (stores open for a minimum of one year) grew 4.3% during the quarter, which is very good for any mature retailer.
Earnings in its latest quarter increased 9.4% to $192.8 million, with diluted earnings per share rising 17.8% to $4.78.
The company bought back 404,000 of its own common shares during its fiscal second quarter at an average price of $495.00 per share, spending $200 million.
Since the beginning of the year, AutoZone has bought back some 1.08 million of its own stock for $492 million, and the company is currently still authorized to buy back another $727 million if it wishes to do so.
In a low liquidity stock such as AutoZone’s, share repurchases have proven to be material, and they’ve definitely helped shareholder returns. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
In its fiscal second quarter, AutoZone opened 28 new stores in the U.S. and four in Mexico. Its latest quarter represented the company’s 13th consecutive quarter of double-digit earnings-per-share (EPS) growth, which is partially due to share repurchases.
AutoZone may deliberately be keeping its common shares outstanding low as a way to boost its share price performance and keep shareholders happy.
But an $18.0-billion stock like this could easily effect a 10-for-one share split to boost its liquidity. Management seemingly doesn’t show much interest or it would have done so already; with a share price performance like this, perhaps it doesn’t have to.
The company’s fiscal second quarter handily beat Wall Street estimates, and like so many other stocks this year, it sold off on the news.
As much as this stock has appreciated over the last several years, it doesn’t seem overpriced in terms of earnings valuation, and current estimates for future quarters and the current fiscal year will be going up.
Corporate share repurchases are a powerful tool, and they’ve proven to work well for shareholders. (See “The Six Things I Look for in a Company Before Buying Its Stock.”) Plus, they’re not just for dividend paying stocks.
As corporate cash balances continue to swell, share buybacks are likely to increase this year.