interesting ... from good ol wikipedia " Share repurchase (or...

interesting ...

from good ol wikipedia

" Share repurchase (or stock buyback) is the re-acquisition by a company of its own stock. "
Purpose ..

Companies typically have two uses for profits.

Firstly, some part of profits can be distributed to shareholders in the form of dividends or stock repurchases. The remainder, termed shareholders' equity, are kept inside the company and used for investing in the future of the company, if profitable ventures for reinvestment of retained earnings can be identified. However, sometimes companies may find that some or all of their retained earnings cannot be reinvested to produce acceptable returns.

Share repurchases are an alternative to dividends. When a company repurchases its own shares, it reduces the number of shares held by the public.

The reduction of the float,[6]or publicly traded shares, means that even if profits remain the same, the earnings per share increase.

Repurchasing shares when a company's share price is undervalued benefits non-selling shareholders (frequently insiders) and extracts value from shareholders who sell.

There is strong evidence that companies are able to profitably repurchase shares when the company is widely held by retail investors who are unsophisticated (e.g., small investors) and more likely to sell their shares to the company when those shares are undervalued.[3] "

.... " Aside from paying out free cash flow, repurchases may also be used to signal and/or take advantage of undervaluation. If a firm's manager believes their firm's stock is currently trading below its intrinsic value they may consider repurchases.

An open market repurchase, whereby no premium is paid on top of current market price, offers a potentially profitable investment for the manager. That is, they may repurchase the currently undervalued shares, wait for the market to correct the undervaluation whereby prices increase to the intrinsic value of the equity, and re issue them at a profit. " ...