Share Buybacks (3)

The funds should be returned to shareholders.

Companies raise cash for investing in growth, if they find no good investing opportunities after a prolonged period and cash flow is healthy, the funds should be returned to shareholders.

Companies doing share buybacks are basically saying that that is the best way to spend their excess cash.

To arrive at that decision, they must be convinced that their share is undervalued compared to their company's prospects.

A company’s share price may not reflect its true potential –

who knows the company’s fundamentals better than the people running them.

Then we have to look at why management is doing this –

is it to improve share price via reducing the free float;

and/or improve the earnings per share (but that only happens when they cancel the shares).