Share buybacks, also known as share repurchases, occur when a company purchases its shares from the market to reduce the number of shares in circulation. It’s misunderstood by many investors, as they don’t know how share buybacks work and why a company would even need to initiate a buyback. They fail to understand that share buybacks can be extremely lucrative for a company when initiated for the right reasons.
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They are designed to reward existing shareholders and provide them with more value for their money. When the number of shares in circulation drops, the price per share will increase, and that will mean shareholders will have more profits if they sell those shares in the market. This article will look at share buybacks, including their purpose and whether they are good news for investors.
When a company decides to repurchase its shares, it is known as a share repurchase or a share buyback. There may be several reasons why a company would opt to buy back its shares, which may include the following:
- It feels the current shares are undervalued
- It wants to reward existing shareholders
- It wants to improve key metrics
- It wants to increase share price
The number of shares in circulation decreases when a company buys back its shares, which will mean fewer shares in the market. The result is an increase in share value or price, and that will mean existing shareholders will have a chance to earn more profit if they sell those shares.
The most common reason for a share buyback is that the company feels its current shares are undervalued in the market. Therefore, it will buy back all of its shares in the market, which will create demand for the shares. When there are fewer shares in the m:arket, it will raise the value of the shares even if it is temporary.
NOTE: The SEC is proposing new stock buyback disclosure rules (December 2021). See the SEC’s proposed changes here .
Share repurchases (Stock Buybacks) have been criticized by economists who claim that it is an artificial method for increasing share prices and an accounting trick used by CEOs to boost their earnings per share numbers. However, when done right, share repurchases can be incredibly beneficial to a company. It helps them reduce the number of shares in existence and ensures that the share price doesn’t drop below the margin the company has set. Learning how share buybacks work is so important.
Even though companies who engage in share buybacks are looked at with skepticism, they are only doing that to survive when you look at the bigger picture. They may be better suited to spend their money on hiring new talent or research and development, but share repurchases also provide them with a solution to their problems. Now is the time to learn how stock buybacks work.
Corporations make money as we’ve shown above by knowing how share buybacks work, and using the strategies to implement stock buybacks to profit their executives, and investors. So, how can you profit as an individual investor? That’s what we teach you here at Buyback Analytics. We provide the data, the analytics to help you find profitable investment opportunities – Which companies are buying back their own shares? How much are they buying? How much would you have made if you had invested along with these companies before? Let us show you how.
About the Author: This article is the copyrighted product of the team at BuybackAnalytics.com .
Buyback Analytics is a Top Tier Investing Platform to help investors find, analyze, and profit from investing opportunities not found through traditional investment tools. We specialize in this simple concept: Follow the trades of Insiders – CONSISTENTLY SUCCESSFUL, PROFITABLE Traders, Investors, and Institutions:
LEGAL Insider Trading (CEOs, CFOs, Corporation’s Accountants & Attorneys, Politicians, etc.)
Stock Buybacks / Share Repurchases by Public Corporations (ie. Apple, Tesla, Netflix, Facebook, Microsoft, etc.)
Market Moving Institutions (Examples: Market Makers, Investment Banks, Stock Brokerages, Hedge Funds, etc.)
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