TOKYO -- Japanese businesses are buying up their own shares at a record pace in an apparent attempt to send a message to investors that their stocks are valued lower than they should be based on fundamentals.
The electronics powerhouse on Feb. 1 reported 14% growth in operating profit on the year to a record 811.5 billion yen for the nine months ended December. Yet its stock price slumped in response to downgraded sales forecasts for some products, sliding to its lowest point in more than a year on Thursday.
"Management must have determined that the shares were underpriced in light of the company's earnings potential," an analyst said. After the buyback announcement, Sony stock shot up 7% at one point Friday before closing the day at 4,906 yen, up 4.1%.
Sony is just one of many companies with strong earnings and weak shares that are turning to repurchases for a boost. When SoftBank Group announced a 600 billion yen buyback Wednesday, Chairman and CEO Masayoshi Son explicitly stated that "I myself as a shareholder feel that the group's stock price is too low." The shares surged the following day.
The annual record for Japanese corporate buybacks since fiscal 2004, when the rules were loosened to allow repurchases via board decisions, is 6.5 trillion yen, set in fiscal 2015, according to I-N Information Systems.
Companies announced 6.32 trillion yen in repurchases so far this fiscal year as of Thursday. Add to this Sony's plans and others announced Friday -- including 30 billion yen at energy and metals company JXTG Holdings, and materials and electronics maker Taiyo Yuden's 3 billion yen -- and the total for the year ending March 31 is all but certain to reach a new high.
Businesses typically repurchase more stock during a price downturn because they can get more shares for the same amount of money. February tends to be a popular month for buybacks, since companies have a good picture of their performance and capital spending for the year soon before they close their books at the end of March.
This year, businesses may be shying away from acquisitions and other growth-oriented spending amid increasing uncertainty about the economy, some say.
"Companies may feel that they have limited options for spending their accumulated cash piles," said Shingo Ide at NLI Research Institute, who expects to see more businesses carrying out buybacks.