Stock buybacks are back in fashion. They may also be a big waste of money.

Earnings season has brought with it the usual beats and misses—as well as announcements of share repurchases. With 91% of companies having reported, some $205 billion of stock was repurchased during the fourth quarter of 2023, according to S&P Global data, up 20% from the third quarter and 8.5% ahead of what those same companies had done a year earlier. It will be the first year-over-year rise since the second quarter of 2022.

The acceleration shouldn’t come as a surprise. The amount companies spend on share repurchases typically tracks the direction of earnings. So when profits are falling, as they did quarter over quarter from the third quarter of 2022 through the second quarter of 2023, buybacks slide as well. But when earnings growth resumes, companies spend more on buying back their shares. With S&P 500 profits expected to grow by 11% in 2024, spending on repurchases should increase as well.

The market has been happy with the buybacks it’s seen this year. Uber Technologies stock jumped 15% on Feb. 14 after it announced an “inaugural program” of $7 billion in buybacks, while Salesforce rose 3% on Feb. 29 after increasing its buyback plan by $10 billion. Zoom Video Communications announced on Feb. 26 that it would buy back $1.5 billion, or 7%, of its own shares, causing the stock to leap 8% the following day. “With $7 billion in cash and $1.46 billion in [free cash flow] projected in FY25, there was some excitement surrounding the announced $1.5 billion buyback or ~7% of shares,” Evercore ISI analyst Peter Levine wrote after the announcement.

But is the excitement really deserved? It’s complicated. Buybacks are supposed to add value by lowering share count, and thereby helping to boost earnings per share. But repurchases are just one choice companies have when deploying capital—and a good management team is one that knows how to deploy capital efficiently. They could put the money back into the business via research and development and other forms of capital spending, or make an acquisition, or pay a dividend.

And buybacks don’t always pay off for investors. Since 1999, companies that reduce their share count by up to 2.5% return about the same as those that hold their share count flat over the next year, when adjusted for volatility, observes Adam Parker, founder of Trivariate Research. Even a large share-count reduction resulted in only a slight outperformance, suggesting that “deploying capital elsewhere—on average—would have been more prudent,” he says.

The words “on average,” though, stick out. Style, for one thing, makes a difference. While value stocks show little outperformance from share buybacks, growth stocks pay a large penalty for large increases and benefit more from a shrinking share count, Parker’s research shows. What’s more, price matters. Companies that bought back the most stock when their shares were cheap relative to their own history outperformed their industry peers by 3.7% over the following year, while those that bought back shares when they were expensive underperformed by 1.1%.

That hasn’t stopped buybacks from becoming increasingly more popular, and with little attention paid to price. About twice as many companies now repurchase shares as did 25 years ago, according to Trivariate data, while more buy back shares than issue new ones. Buybacks have become so important that about a tenth of companies repurchasing their shares lose money, and companies buy them regardless of whether the stock is expensive or cheap.

“They’re concerned that if they don’t buy back, the Street will think it’s expensive,” Parker says. “They’re worried about signal, not reality.”

Of the stocks getting buyback boosts, Zoom might be the one putting its cash to the best use. The stock trades at 4.7 times sales, well below its five-year average of 19.5 times. At the same time, Zoom has $7 billion in cash on its balance sheet, and the buybacks mean that it’s finally doing more than just sitting there earning interest. Zoom, known to nearly everyone due to its prevalence during the Covid-19 lockdowns, has even started offering new products that could eventually pay off with a broader, more robust business, as it expands to contact centers, a customer-service platform, and phone service.