how stock buybacks make money for shareholders
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A company has 100 shares and $100 in earnings, that’s $1/share in earnings. Assuming a 20 P/E ratio, each share would sell for about $20.
Now, the company buys back 20% of shares, reducing the number of shares to 80. Those same $100 in earnings are now $1.25/share. And at 20 P/E, that’s a share value of $25.
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