What is a stock buyback?

A stock buyback refers to the process in which a company repurchases its own shares from the market. This is often done for several reasons, including reducing the number of outstanding shares, which can help to increase the earnings per share (EPS) and subsequently the stock price. Additionally, buybacks can signal to investors that the company believes its shares are undervalued or that they have excess cash that they do not need for immediate investments or operational expenses.

When a company engages in a buyback, it typically purchases shares either on the open market or through private negotiations, thereby reducing the total number of shares available to the public. This action can also be a way for the company to return capital to shareholders without paying direct cash dividends, which may be subject to different tax implications.

Understanding this concept is vital in finance and investment, as buybacks can influence stock performance and shareholder value significantly.