Universal Health Services (UHS) 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 6.0%.

Why does this matter? The answer is “denominator effect”: while UHS’s underlying net income has grown 31.0% annually in the last three years, its earnings per share (EPS) has expanded at 37.2%. What does this contribute to? Steady capital gain. In the last 3 years, the stock returned 23% in price appreciation (7.2% annualized), with peak return reaching 77%. Ofcourse share buyback is only one of the components driving capital gain, and there are other factors at play…