Caterpillar (CAT) currently operates as a Capital Compounder, a business model characterized by the systematic prioritization of share count reduction. Over the last twelve months, the company has reduced its total shares outstanding by 2.4%.

Why does this matter? The answer is “denominator effect”: while CAT’s underlying net income has grown 13.8% annually in the last three years, its earnings per share (EPS) have expanded at 18.1%. What does this contribute to? Steady capital gain. In the last 3 years, the stock returned 338% in price appreciation (63.6% annualized), with a peak return reaching 357%. Of course, share buyback is only one of the components driving capital gain, and there are other factors at play…