A stock buyback is when a business decides to repurchase some of its shares, pulling them from the open market. Also known as a stock repurchase, this movement is used by many businesses to generate capital quickly. It’s often referred to as a re-investment. Stakeholders can benefit from stock buybacks as the relative price of each individual stock will increase as the total number of available shares decreases. However, this action also prevents some investors from being able to own shares of the company.

There are two methods companies can use when enacting a stock repurchase: through the marketplace or a tender offer.

Tender Offer

When companies don’t want to go to the marketplace to repurchase stocks, they’ll make what’s known as a tender offer. It’s the shareholders are requested to submit a number of their shares in an established period of time. Tender offers dictate the total number of shares and the price range of the shares. It’s up to each individual investor to determine whether or not the conditions are worthwhile.

The Open Market

Many companies opt to simply repurchase shares from the marketplace at the price dictated by the market conditions. However, as mentioned before, this announcement can temporarily increase the value of the stock.

If you’re interested in learning more about stock buybacks, how they impact you as an investor, and whether or not you should participate, feel free to contact the experts at Lacy Financial.