(6) Providing Additional Exit Route To Big Shareholder In Thinly Traded Stocks
It is one of the most secret reasons to engage in stock buyback activity. Stock liquidity is necessary to make quick entry & exit without a substantial loss in value.
If a stock is illiquid then it becomes hard for shareholders to buy & sell shares quickly. It is due to the absence of enough traders or investors in the script.
Sometimes, larger shareholders may be looking to liquefy their holdings then stock buyback activity gains significance. Stock buyback provides the needed liquidity in the stock to buy those shares from them.
Thus, an additional exit route is provided to larger shareholders or institutional investors to safeguard the interest of minority shareholders.
(7) Initiating Accumulation Or Distribution Of Shares In A Bigger Range
It is one of the most amazing reasons to engage in stock buyback activity. Most of the stocks trade in certain price range.
This share trading process continues until some positive or negative news strike the market. Depending on the news item, the stock may shift its range either upward or downward.
Similarly, certain stocks are stuck in a particularly trading range for a long time until breakout happens on either side.
Stock buyback announcement can play a significant role in triggering a shift of trading range within a stock of underlying company. Once the stock is shifted to bigger range, the trading process for accumulation or distribution of shares again continues.
Thus, stock buyback provides a much needed trigger to initiate a technical breakout from a trading range.
- Reasons Behind Company’s Buyback Offer: Shutterstock