By Jacob Sonenshine

Stocks go down, stocks go up. But looking at shares of companies with large share repurchases could be gold in a volatile market.

The S&P 500 has snapped back from its April lows as markets begin to reflect President Donald Trump's less draconian take on tariffs. At the same time, damage to the economy hasn't shown up in the data, providing hope that it may emerge relatively unscathed from the episode. Some Wall Street observers have even started looking hopefully toward the possibility that the S&P 500 could soon get back to a record high.

Perhaps. But in a market like this one, caution is the better part of valor. The impact of tariffs may not show up in the hard data until May or June, and the market is only one Trump Truth Social post away from another tumble. In this environment, many stocks don't look super attractive, especially given the lingering hazards. The Cboe Volatility Index, or VIX, has fallen, but remains above 20, a level that suggests higher-than-average risks.

A better option: Finding lagging stocks that are buying back stock, says Evercore ISI strategist Julian Emanuel. He screened for stocks with poor momentum -- Wall Street's way of saying they've underperformed the market -- and are buying back more stock than others, indicating that management remains confident in a company's earnings potential and wants to support the stock price. Examples include oil producer Devon Energy, utility AES, homebuilding-materials maker Trex, and solar-technology firm Enphase Energy. The four stocks have averaged declines of 11% this year, far more than the S&P 500's 3.6% drop.

Pinterest also made the list. The $17.6 billion stock is down 35% from a peak this year, and has bounced only 7% from its low -- but the company has been a big repurchaser of its shares. It now trades at about 4.1 times expected sales for the next 12 months, down from a three-year peak of about 7.6. While it's more expensive than Snap and Etsy, smaller platforms that haven't historically lived up to profit expectations, it is much lower than other fast-growing internet stocks like Airbnb and Booking Holdings, which trade over six times.

Pinterest deserves to be grouped with the latter. With $3.65 billion of sales last year, it has a small portion of the global digital-advertising market, but can grab more. The company is growing average revenue per user across the globe as it increasingly monetizes its platform, on which users can look for ideas for whatever interests them, and then click on an advertiser's website to make a purchase.

The result has been midteens sales growth, slower spending increases, and rising profit margins. Earnings per share have grown quickly as well, and that's expected to continue. Analysts see 27% growth annually for the coming three years, outpacing Airbnb, and Booking.

The kicker is the buybacks, a small part of that earnings-per-share growth. Since Pinterest issues new shares to employees as part of compensation packages, it also buys back shares to keep the share count stable and support earnings per share. With not even $160 million of debt, about $2.5 billion in cash and almost $1 billion in free cash flow, the company has been repurchasing stock at a pace of close to $600 million a year.

Add it all up, and it's time to put a pin in Pinterest stock.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

To subscribe to Barron's, visit http://www.barrons.com/subscribe

(END) Dow Jones Newswires

May 02, 2025 21:30 ET (01:30 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.