07-25-2013, 08:39 PM
raz wrote:
[quote=GGD]
[quote=Acer]
Anyone care to explain to an investment n00b why Apple would do this?
It's a way to indirectly return some of the cash to the shareholders. By reducing the total number of shares, each remaining share owns a larger portion of the company. So the earnings per share should increase and the stock should be worth more if all other factors remained constant. That's the math behind it at least.
While the above is true, many would argue that stock buybacks are merely a way to prop up the stock price - as opposed to its value. The subtle difference is that people who are compensated by the stock price (mostly executives and board members, but also employees) reap the benefit as opposed to shareholders in it for the long haul.
It's also true that companies often do this when they feel that the market is undervaluing the stock price compared to the intrinsic value of the company. In this regard, repurchases are a kind of legal insider trading because even if the company reveals everything about operations that it is legally required to, the insiders still know more than the public does.