Stock Markets Exposed
Company stock buy back option?
Is it a good idea to invest in a company which has announced buying back some its own stocks?
Public Comments
- UH
- If you already owned the stock when the company made the announcement you would probably make money if their buy back price was higher than the market price. But shortly after the announcement the market price usually goes up to meet the offer price so there will probably be no short term gain. It probably is not unsafe to purchase the stock but don't expect a meteoric rise in the market price.
- Typically it's a positive indicator on the stock but it's just one of many factors that should be looked at when determining whether or not to buy a stock. It's obvious that when a company buys back stock that keeping everything else equal, the value of your stock should go up. It also indicates that the company believes that the stock is undervalued and because they are in the best position to understand the long term growth potential of the company it is usually seen as a bullish sign for the future prospects of the company. It is also a tax efficient way to reward existing stockholders because rather than paying a dividend that would create a taxable event for the shareholder, in theory the value of your stock should increase by the same amount but without a taxable event. Beware though that it could also indicate that the company has few investment options for long term growth and is buying back stock with cash on hand due to it not having many attractive opportunities to invest in the company for future growth. Again, it is typically a positive thing but in my view not a real important tool when analyzing whether or not to invest in a particular company.
- Stock buy back is a way for companies to keep the value of stocks up buy using their money to buy up the shares. This creates value because they'll be less outstanding shares. Simple term, if there is less shares outstanding, the more the shares are worth. In a way, this is probably a good use of free cash flow. In short, yes.. i think it's a good idea to consider buying when company announces a buy back. See http://ibooyah.com for investment matters.
