Share buybacks are one of the key ways that companies return capital to shareholders. Buybacks do this by reducing a company’s outstanding share count, allowing each remaining share to account for a larger percentage of a company’s value. All else equal, this puts upward pressure on share prices.
They are also often a signal of management confidence. When a company buys back shares, it is essentially investing in itself. Thus, buybacks can indicate that a company believes investors are undervaluing it.
