More often than not, Share buybacks are looked upon as a positive catalyst.
In general, the company perform this activity when it thinks that the prices are undervalued at current levels and they are confident in the prospects further ahead.
Furthermore, Share Buybacks reduce the company’s outstanding shares so that the EPS (earnings per share) are accelerated with the “pie” being shared among lesser people.
This enhances the assurance for investors to invest in the company; fuelling the increase of the stock price advancement.
However, there is always two sides to a story. Let us examine some of the potential benefits and pitfalls of a stock buyback:
Benefits of Share Buybacks Increased Shareholder Value – There are many ways to value a profitable company but the most common measurement is Earnings Per Share (EPS). If earnings are flat but the number of outstanding shares decreases. . Voila! . . A magical increase in period-to-period EPS...
