Why do corporations buy back their own stock? What is the strategy in this?
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You have a company with 100 shares outstanding and report earnings of $100, or $1/share.
You buy back 10 shares, now only have 90 shares outstanding. Next quarter, you again report earnings of $100, but now that’s $1.11/share. Assuming that your PE remains constant, the share price should rise accordingly, creating more shareholder value for those remaining shareholders.
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