The history of $LOW Buyback

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1

I believe at the height of housing crisis around 2007 $LOW announced its strategy to aggressively buyback. The company was still at growth phase, opening stores aggressively. The sales was around $45 B. The share count then was about 1.5 billion shares. The share price was around $30. The company’s added further $5B to then existing buyback plan. I thought if they could execute that would result in reducing the share count by 50% and will be a great stock to own for long-term.

I am quoting most of these figures from my memory, so they could be off; There used to be a board called “Deranged Monkey discussion” or something like that, a great board to discuss retail stocks. That’s where I posted my thesis. Folks dismissed. Some value guys argued the buyback doesn’t generate any value, etc.

So, I bought around $30, and kept buying as it went down, and hit around $15, so when it recovered, I was so relieved to sell it on breakeven. GFC was dramatic, I was young, immature, and got shaken out of my position.

Fast forward, 20 years, today the share count is 560m. They share repurchase still continues and they have $10.8 B repurchase program in place. They bought back close to 1 billion shares, increased their dividend from $0.2 to $4.8, while increasing their sales to $86 B. Of course their debt ballooned from $4 B to $40B today ( recently they bought a business for $10B, so some of the debt went to finance that).

Today’s shareholder is owning much bigger slice of the pie. When managements do a systematic buyback over a period of time, they can generate significant wealth for existing shareholders, where the shareholder does nothing but holding onto their shares.

I hope someone at Berkshire reviews this and internalize it, and start buyback in earned. If they do that, we are looking at at least another decade of share repurchases, and slow, steady increase of share price. But one can only hope…

2

Great experience based testimony. From the wouldha, couldha, shouldha… files. Do you know if you ended up better off picking another horse or staying in this name?

Ultimately, this is the weight of the choice as I see it as you can still buy this name today (and show preference over other names in it’s place).

3

I didn’t stay in the name, I got shaken out.

Both HD & LOW are in my radar. There were multiple times, I missed buying these name due to valuation. Hopefully, this time I am able to do it.

Another important lesson is, sometimes you have to initiate a position. Best example is MA&V purchase. At the time of purchase the valuation was bit stretched, but 10 years $MA is 18% CAGR excluding dividends and handily beats SPY by 200% cumulative.

I go by another name of analysis, paralysis, so buy something then let commitment bias will help you to add. :rofl: :rofl:

4

Yes. I bought MA and V in small quantity. I did not follow through with large tranches of capital. Same story, different names.

5

I originally bought 50 shares of MA & V, subsequently added, sold, etc. But retained that original 50 shares in all accounts. Having talked about the benefits of holding on for long-term, I also have an example of getting out on time.

On 3/23/2000, COVID bottom, I bought a bunch of stocks, of that I have sold everything except the $GOOGL, in few years, after I felt the stocks have reached their full valuation. Few stocks like $AMZN I wish I had retained, but overall those sales were a good decision.

But generally, you need to hold on to few years, for your thesis to play out. Time is a friend of Bull or bullish thesis.

6

The most important lesson out of this exercise is, I realized the power of steady, aggressive buybacks in value creation. That was the main reason first I got attracted towards Citi, but Citi had other catalysts play out better than buyback.

But still the big banks, and even many regionals have a strong buyback tailwind. I know many value guys argue that buybacks doesn’t change the value, my work suggests otherwise.