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Do Stock Buybacks Boost Company Valuation?

Stock buybacks have been a popular tool among companies looking to boost their share price and increase investor confidence in recent years. The practice involves a company repurchasing its own shares from the market, thereby reducing the number of outstanding shares and potentially increasing the value of each remaining share. But do stock buybacks actually lead to a significant boost in company valuation, or are they merely a clever accounting trick designed to artificially inflate share prices?

Theoretical Benefits​

Stock buybacks can provide several theoretical benefits for companies, including:

  • Reducing the number of outstanding shares, which can increase earnings per share (EPS) and make the company appear more profitable
  • Boosting share price by reducing supply in the market and creating a sense of scarcity among investors
  • Returning excess cash to shareholders through a tax-efficient method

However, critics argue that stock buybacks are often used as a way for companies to artificially inflate their valuation rather than investing in future growth or returning value to shareholders.