Stock buybacks, also known as share repurchases, are common practices for many companies to allocate capital. When a company buys back its own stock, it reduces the number of outstanding shares available, which can raise the stock price if demand stays the same.
Buybacks usually come out of a company’s free cash flow (FCF), which can make them controversial. A company may repurchase its shares for many reasons, including a belief that its stock is undervalued. However, growth-oriented investors may steer clear of these stocks if they view a buyback as a signal that the company’s growth prospects are limited.
