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stock buy backs
i have a question on stock buy backs.
i have recently gotten into reading( not yet trading because of) but learning about stock buy backs. i understand that buying back stocks can increase shareholder value. but i also understand that it depends on why a company buys back their stock and ultimately what they end up doing with those bought back shares.
My question is this. when i see a company buying back a million shares , how do i know if this is a good move for the company and its shareholders or if its a bad thing?
there are newsletters that track the buy back status of hundreds of companies and i see this activity and don't know weather these buy backs represent a good opportunity or not? so how do i determine if the buy back is a good move or not ?
Answers
2769 points
Oldman answered one year ago …
The general answer is that buybacks are allowing a company to reduce the "Float" (the total of shares outstanding - over a period of time, without the commitment to raising or declaring a dividend. If they pay a dividend, their share price might suffer if it had to be stopped at some point in the future. In addition, by using their cash to buy back stock, this is a cost on their balance sheet, rather than a payout.
That's the simple answer, and often, a company, whose price/share has (in the view of their board of directors) been unfairly driven down, for example, by Mr. Market's associating them with some other unfortunate securities, will get permission to buy back some portion of the outstanding shares to drive their share price up. See for example, recent news from ACAS. Essentially, this is a P.R. stunt.
You'd need to look at their prior buybacks, vs price action on the security,vs. the industry they're in ... and the quarterly financials to see "If I were an owner of this company, would I want the share price to be higher, and how much of my capital should I spend to force it up?"
