A stock buyback (share repurchase) is when a company uses its own cash to buy its shares back off the open market. Those shares are retired, so the number of shares outstanding shrinks — and each remaining share now owns a slightly bigger slice of the same company.
A buyback is one of the two main ways a company returns cash to shareholders (the other is a dividend). Its most-quoted effect is on earnings per share (EPS). Example (illustrative): a company earns $100m and has 100m shares, so EPS is $1.00. Buy back 10m shares and the same $100m is split across 90m shares, lifting EPS to about $1.11 — a 10% rise with no change in the actual business.
Treat a buyback as a clue, not a verdict. Ask why: is management returning genuinely surplus cash at a sensible price, or propping up EPS to hit a target? A rising EPS driven by a shrinking share count is not the same as a company that is actually growing — check the revenue trend alongside it. None of this is investment advice.
It depends on price and motive. A buyback is genuinely good when the shares are cheap and the cash had no better use in the business. It's questionable when a company overpays, borrows to do it, or uses it to prop up EPS without real growth.
Retiring shares divides the same profit among fewer shares, so EPS rises even though the company earns no more money. It's an arithmetic effect, not evidence of a growing business.
Both return cash to shareholders. A dividend pays cash directly; a buyback reduces the share count so each remaining share is worth a bigger slice. Buybacks are more flexible but less predictable than a steady dividend.
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Educational research only — not investment advice.