Part 1: What Is a Stock Buyback?

Definition of a Buyback (Share Repurchase) A stock buyback, also known as a share repurchase, is when a company buys back its own shares from the open market or directly from its shareholders. When those shares are repurchased, they are usually retired or held as treasury stock, effectively reducing the total number of shares outstanding in the market. Why Do Companies Do This? By reducing the number of outstanding shares, a buyback can: * Increase earnings per share (EPS) – because profits are now spread over fewer shares. * Signal confidence – management might believe the stock is undervalued and wants to invest in itself. * Improve shareholder value – with fewer shares in circulation, each remaining share may become more valuable. * Provide flexibility – unlike dividends, buybacks aren’t seen as long-term commitments. 🧠 A Simple Analogy Imagine a pizza (the company) sliced into 10 pieces (shares). If you own 1 slice, you have 10% of the pizza. If the company buys back 2 slices, now there are only 8 slices—and your 1 slice now represents 12.5% of the pizza. That’s more value per slice, even though the pizza size hasn't changed.