HEDGEFUNDIE wrote: ↑Sun Mar 31, 2019 4:57 pmA company that spent $1B on stock buybacks is worth the same after the buyback?unclescrooge wrote: ↑Sun Mar 31, 2019 4:45 pmNo, therev are fewer shares but the company is worth the same.HEDGEFUNDIE wrote: ↑Sun Mar 31, 2019 3:07 pmThe reason stock buybacks don’t affect share price is because the company spent its cash to buy back those shares. There are fewer shares now but the company is also worth less.RAchip wrote: ↑Sun Mar 31, 2019 3:00 pm“technically speaking, buy-backs don't affect the share price”
Haha, then what is the purpose of buybacks? If a company trades at 17x eps and you reduce the number of shares then the eps that you multiply by 17 goes up meaning the share price should go up.
If buybacks dont affect stock price then how do they benefit stockholders?
If you got a pizza into 8 slices vs 6, do you get more pizza?
The benefit is future earnings are higher on a per share basis and thus each share would be worth more.
It’s literally worth $1B less.
Are you serious?HEDGEFUNDIE wrote: ↑Sun Mar 31, 2019 6:52 pmStock that is bought back is retired. It disappears. The shares outstanding are reduced. The remaining shareholders each own a slightly larger portion of the company than before.
But the company, to buy back that stock, had to spend cash that was on its balance sheet.
So as a remaining shareholder you get a slightly larger slice of a slightly smaller pie.
Why on earth do almost all major companies do it then? Because they like throwing money out the window?
The company is not worth less according to the balance sheet. Cash goes down but shareholder equity also goes down... This is an Accounting 101 concept...
Buybacks increase EPS, CFPS, ROA, ROE, etc. The S&P500 buyback index usually doesn't do as well in down markets, but it has significantly outperformed the broader S&P500 over the past ten years, with a total return of 18.8% annually vice 15.9%.