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Caleb Wright on the Meaning of Stock Buybacks
posted May 12, 2005
 

Caleb Wright
Via the Internet


Companies only really buy back stock to decrease the float. Investors like it. Since dividends (the traditional way of disbursing excess profits to shareholders) are seen as a bad thing for a growth stock (sending the message that the company doesn't know what to do with its profits) companies like Marvel like to buy back stock. The decreased number of shares should result in a higher EPS ratio for the remaining shares, and if the stock retains its multiple, higher share prices. It's not surprising that Perlmutter would wait until the program is over to sell his shares, they should be worth more then. It's also used to mask the effect of option exercising by executives. Something of a gimmick, all in all.