Part 3/8:
To comprehend the implications of the absence of a buyback program, one must understand what stock buybacks entail. When a company repurchases its own shares, it reduces the total number of outstanding shares available to investors. This can have a beneficial impact on earnings per share (EPS), as a fixed amount of earnings is distributed among fewer shares.
For instance, if a corporation had earnings of $100 and 100 shares, each shareholder would receive $1. However, if the company buys back 20 of those shares, the earnings would then be shared among just 80 shares, resulting in an EPS of $1.25. Therefore, stock buybacks can positively influence stock prices and serve as a vote of confidence in the company’s value.