Stock Buyback

Stock buyback means a company buys back its own shares from the market. In simple terms, a stock buyback reduces the number of shares outstanding. Stock buybacks are important because they can increase EPS, return cash to shareholders, and signal that management believes the stock is attractive. Fewer shares can mean each remaining share represents a larger ownership stake. For example, if a company repurchases 5% of its shares, the remaining shareholders own a slightly larger portion of the company. A stock buyback is not always good. If a company overpays for its shares or uses cash it needs for growth, the buyback may not create value.