As of 11/11/2019
  Indus: 27,691 +10.25 +0.0%  
  Trans: 11,030 -37.61 -0.3%  
  Utils: 830 -5.55 -0.7%  
  Nasdaq: 8,464 -11.03 -0.1%  
  S&P 500: 3,087 -6.07 -0.2%  
YTD
 +18.7%  
 +20.3%  
 +16.4%  
 +27.6%  
 +23.1%  
  Targets    Overview: 10/31/2019  
  Up arrow27,750 or 26,900 by 11/15/2019
  Up arrow11,300 or 10,100 by 11/15/2019
  Up arrow870 or 800 by 12/01/2019
  Up arrow8,500 or 8,000 by 11/15/2019
  Up arrow3,150 or 2,950 by 11/15/2019
As of 11/11/2019
  Indus: 27,691 +10.25 +0.0%  
  Trans: 11,030 -37.61 -0.3%  
  Utils: 830 -5.55 -0.7%  
  Nasdaq: 8,464 -11.03 -0.1%  
  S&P 500: 3,087 -6.07 -0.2%  
YTD
 +18.7%  
 +20.3%  
 +16.4%  
 +27.6%  
 +23.1%  
  Targets    Overview: 10/31/2019  
  Up arrow27,750 or 26,900 by 11/15/2019
  Up arrow11,300 or 10,100 by 11/15/2019
  Up arrow870 or 800 by 12/01/2019
  Up arrow8,500 or 8,000 by 11/15/2019
  Up arrow3,150 or 2,950 by 11/15/2019

Bulkowski's Capital Spending

 

My book, Fundamental Analysis and Position TradingFundamental Analysis and Position Trading: Evolution of a Trader book., pictured on the left, has a complete chapter dedicated to capital spending, including, "Is Decreasing Capital Spending the Holy Grail?"

If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

-- Tom Bulkowski

$ $ $

This page reviews a study concerning the stock performance of companies with growing or shrinking capital spending.

Summary
Methodology
Results
See Also

Capital Spending: Summary

Value Line defines capital spending per share as "the outlays for plant and equipment for the year expressed on a per-share basis. Excludes funds spent for acquisitions."

The idea behind looking at capital spending is to discover what happens to the stock's performance when the number changes. If the company spends a lot of money on new plants, does that hurt the stock's performance? Some might say that little capital spending is best. Try to find a company that requires little cash to keep it running, but throws off a lot or cash when compared to another business that sucks most of the available cash to keep it going.

I discovered that companies showing lower capital spending from one year to the next have dramatic price changes in the coming years.

Capital Spending: Methodology

I used the Value Line investment survey and typed in their capital spending numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.

After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.

Top of page More

Capital Spending: Results

The following table shows the stock performance over time of companies with increasing or decreasing capital spending.

1 yrSamples2 yrsSamples3 yrsSamples4 yrsSamples5 yrsSamples
Higher cap spending10.10%58810.90%50610.30%4299.70%3739.30%331
Lower cap spending21%35418.30%34119.10%32722.10%30022.20%257

For example, the first year after companies had higher capital spending than the prior year, the stock climbed an average of 10.1% over the next year. This compares to a rise of 21% for those stocks that had a decrease in capital spending. The average rise over 2 years was 10.9% versus 18.3% for higher and lower capital spending, respectively.

As you scan across the columns in the table, it shows that stocks with lower capital spending perform about twice as well as those with higher spending.

-- Thomas Bulkowski

Top of page More

See Also

 

Support this site! Clicking any of the books (below) takes you to Amazon.com. If you buy ANYTHING while there, they pay for the referral.

My novels:      New                  Bumper's Story Head's Law

Chart Patterns: After the Buy Getting Started in Chart Patterns, Second Edition Trading Basics Fundamental Analysis and Position Trading Swing and Day Trading Visual Guide to Chart Patterns Encyclopedia of Candlestick Charts Encyclopedia of Chart Patterns 2nd Edition Trading Classic Chart Patterns

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