Stock buybacks can excite all types of investors. These possible reasons behind company’s share buyback offer can help you to make better deals.
Stock buyback, also known as share repurchase, is a corporate action in which a company buys its own outstanding shares from existing shareholders. Once the offer gets completed successfully, the number of outstanding shares in the open market decreases.
This corporate strategy could be the largest source of demand for shares in all types of market sentiments.
According to the Goldman Sachs projections, U.S. companies are expected to authorize more than $1 trillion in share buybacks for 2018. This huge appetite of shares is sufficient enough to make 2018 a potentially history-making year for repurchases.
Buybacks when done for perfectly legitimate & constructive reasons could trigger a long-term positive impact on the share price. However, every buyback is not successful in the market.
It can also have adverse impacts on the financial position of the company particularly during difficult times. But, what triggers a company to go for buyback of shares.
There could be one or more reasons for such a strategy. Here are 20 possible reasons for company’s share buybacks:
(1) Boosting Underperforming Stock In The Market
It is one of the most common reasons behind company’s share buyback offer. Every stock in the stock markets is not performing well as compared to others.
Some stocks are known to outperform the stock benchmark or index. However, some stocks are known to lag behind the stock benchmark or index. Similarly, some stocks may fluctuate in between this form of categorization.
Some of the reasons behind stock underperformance include sluggish business cycle, poor results, absence of growth opportunities, negative management decisions, inability to meet investor’s or analyst’s expectations, & many more.
Sometimes, a stock may also underperform in the stock markets despite solid financial year. In these situations, a company may decide to initiate shares buyback plan. This corporate strategy could quickly help in lifting the performance of an underperforming stock at least for few months.
- Reasons Behind Company’s Buyback Offer: Shutterstock