When should a company buy back stock?



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When should a company buy back stock?

2 Answer(s)


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A company should typically buy back its own stock when it thinks that a stock is being undervalued by the public. Now typically, there could be many reasons for this. There could be a short term challenge with the company's operations that is causing the stock price to ----, because of which the public is scared, and you too fear the price of the company in stock is falling down.

However, if the company's management is confident about the company's future, they should buy back the stock so that in future they will know that the stock price of the company will go up. This will also convey to the stock market a positive sentiment that a company itself believes in its stock price.

Another reason for a company to buy back stock, the second reason, is if there are any macro-economic factors that are beyond the company's control that are affecting the stock, which could lead to the stock price declining.

Such macro-economic factors could be short term or could be medium term, sometimes long term. If it is within a reasonable spun of time, and the company expects these macro-economic factors to pass and the stock market to regain, then the company could also buy back its stock.

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