What Investors Should Know about Stock Buybacksby Tom Murcko
In general, stock buybacks are a positive sign, because they usually mean that the company has more cash than it needs to operate, and that management feels the intrinsic value of the company is higher than the market price. The buyback will reduce the shares outstanding and will therefore result in higher earnings per share, all other things being equal. But note the size of the buy: bigger is better. Also, an announcement that the company has approved a buyback doesn't necessarily mean the buyback will occur, and is sometimes done as a PR move. Also, determine whether the shares are being bought back just to cover employees exercising stock options, in which case the benefits won't accrue to shareholders.