About Share Buybacks
When companies repurchase their own stock (commonly known as buybacks) it reduces the number of shares available to other investors. By limiting supply in this way the basic laws of economics suggest that the price of the remaining stock increases. So buybacks are a means of supporting the share price as an alternative to paying dividends by reducing the number of shares available to the investment community. Companies may decide that they can offer existing shareholders the best return by utilising spare cash in this way.
Buybacks are the converse of issuing new shares for sale under a secondary offering which often dilute existing shareholders by creating more shares available. These are designed to raise cash for a project or acquisition, a buyback does the reverse, the company spends cash on shares and may hold them in Treasury or cancel them. Either way they become unavailable to existing or new shareholders.
What to Look for
Studying buyback activity can give a clue to the fortunes of a company and help predict future share price movement. However, in many companies, particularly large caps, buyback trades happen daily so monitoring every trade becomes meaningless. Also, as with most things in equity markets, the news moves the price more than the actuality. Our data is collated from daily buyback announcements and can easily be aggregated to look at buybacks and study behaviour patterns, or changes in patterns.
In addition to announcing trades which have taken place, companies announce their intentions in advance. Intentions may take the form of an authorisation by the board which authorise a number of shares to be repurchased over a time-scale and subject to certain conditions. Our data includes ‘Intentions and Authorizations’ so we can tell clients what is likely to happen as well as what did happen. In this way, clients can study the actuality with a company’s stated intentions.
So at a company level buyback data can help sophisticated investors gain insight but buyback data can give insight by aggregating across companies.
Aggregating data by market sector can offer insight into the confidence within each sector. Similarly, looking at data by individual market or index can show regional differences.
This data is most useful when studied historically. Our time series reports make it easy to spot trends and changes.