I just completed an SSG on AAP - Advanced Auto Parts - an investment idea presentd at the last Better Investing 5 in 5. It is an interesting stock and in my analysis shows the stock as very close to being a buy. There is one point that bothers me. All the chart lines - sales - profits - cash flow -  are headed in the right direction. A major stock buyback program has the shares outstanding tailing down, but the book value per share is headed down, too. Looking at the balance sheet for 2009, 2010 and 3Q2011 the following values result from dividing the shares outstanding in to the stockholder equity: $13.69, $12.68 and $10.75. So why is it good for me as an investor for the company to buy back share and have the book value per share go DOWN. Is this an accounting oddity? Am I doing the calculation wrong? It just seem illogical that the buy back has a negative impact although the company's performance is strong. I'd think that the buyback would be neutral on the balance sheet with the money to buyback the stock coming from the asset side of the ledger and a like offsetting reduction in the liabilities in the stock account. What am I missing.

By the way, in going through tis exercise, I noticed that the stock is selling for 6+ time book value, which bothers me, too.

Jeff

Doug,

Thanks for the reading material on share buy backs.

I did go back and look at the ratio analyzer for AAP and the increases in inventory and account receiveable are given a green check as they appear to be in line with sales growth.

Many companies offer stock purchase programs for officers, directors, and employees, frequently at a discount to the current market price. The intention is to increase the ownership of these insiders, which helps align their interests with shareholders (in theory). Sometimes I believe that companies will make loans to management to help them purchase shares of the company, and this would be disclosed in the proxy statement as part of their compensation. Purchases by insiders are regulated by the SEC, with stiff reporting requirements, and most companies designate a "window" in which shares can be sold or purchased, usually in the period following quarterly or annual reporting (so that insiders can't front-run any news that might affect the share price of the stock).

Doug