What is one benefit of a stock buyback?

A stock buyback refers to a company's practice of repurchasing its own shares from the market. One significant benefit of this action is that it enhances earnings per share (EPS). Here's why this is the case:

When a company buys back its shares, the total number of outstanding shares in the market decreases. Earnings per share is calculated by dividing the company's net income by the number of shares outstanding. With fewer shares outstanding due to the buyback, the same level of earnings is spread over a smaller number of shares, resulting in a higher EPS. This increased EPS can make the company appear more profitable on a per-share basis, which can positively influence investor perception and potentially lead to a higher stock price.

Additionally, stock buybacks can be interpreted as a sign that the company believes its shares are undervalued, thereby providing investors with further confidence in the company's prospects. This strategy can be especially appealing when a company has excess cash that it aims to return to shareholders, as it can be a more tax-efficient method compared to dividends.