When Buybacks Create Value

A buyback is an investment decision: the company is buying its own stock. Like any investment, it pays off when the price is right. Here are the conditions that make buybacks good for long-term owners.

Buying below value

A buyback creates value when the company pays less than the shares are really worth. If a business is worth $100 a share and it buys stock at $70, every remaining owner gains. If it pays $150, remaining owners lose. Management usually knows the business better than anyone, so disciplined buybacks at reasonable prices can be one of the best uses of cash.

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