No, there's less shares (which are priced higher) but also less cash available. Your individual ownership is the same value, but the optics are better for the CEO.
Also, and most importantly, the CEO is now in the money and can sell, so his compensation increased just by increasing the share price.
The part you're ignoring is future earnings. Assuming a company maintains its earnings, you have a bigger slice of the pie next quarter. If the company trades at the same EPS multiple, your stake definitely has gained value. You're totally ignoring enterprise value.
In a vacuum, nothing has changed about a company's future earnings when they repurchase shares.
The kind of bizarre roundabout way to consider it is if Apple bought 25% of itself with its money mountain (they can't, beside the point), your stake in the company goes up because you own shares in Apple, which in turn owns 25% of itself.
You effectively have more equity in Apple when it buys its own shares.
Buybacks make sense only if you have more cash than you know what to do with.
What the previous poster is trying to get at is that a big-ticket buyback signals an inability to invest that sum in a way that will improve growth or profitability. The best move to increase EPS is invest in capital improvements to increase earnings. If you can deploy money effectively, that means you're also growing in the long-term. Reducing the number of shares via a buyback also increases EPS, but it doesn't improve the top line.
In other words, a buyback is a way to increase your (and the CEO's) earnings per share even in the midst of stalling growth. So what I'm getting out of the previous comment is: don't confuse a buyback with continued growth; it's actually a "cashing out" moment.
I think a rational CEO/CFO looks across intrinsic/organic investments in their own company, possible mergers and acquisitions, and share buybacks and "horse races" each of those possible uses for excess cash.
Whichever combination of those items provides the best risk-adjusted return is the one (or several) that they should choose. The risk of share buybacks is quite low. You more or less know what the outcome will be, so even if the reward of a successful M&A or an organic expansion project is higher, it may still be smarter to buyback shares once you discount the former possibilities for the uncertainty. This is even more true if you believe the stock market is undervaluing your firm's shares, which of course then becomes a very common storyline when buyback programs are announced or expanded.
Absolutely. It's a low-risk move that reduces the number of shares rather than increasing earnings. But it follows (if the leadership of company you bought is rational) that they've decided there aren't enough organic investments or good M&A prospects to make a full deployment of their cash worthwhile. They are effectively giving the money back.
If you invested because you believe in the long-term growth prospects of the company, then you expect them to plow their cash into increasing the top line, and a buyback can be a disappointing signal. If you invested because you believe it's a good income stock, a buyback is exactly what you want.
It may underperform in absolute terms, but or shareholders per share is what matters.
If a company has lots of projects that can exceed the cost of capital, then they reinvest profits and ingest more capital. When this is no longer the case, the responsible thing to do is return money to shareholders via dividends or (more tax efficiently) via buybacks. Then investors can use the money elsewhere.
The issue here is it seems like on the margin CEOs get more risk averse on long term projects as they vest, and can grab the bird in the hand.
It's the easiest lever a CEO can push on to look good.
The numbers don't lie, right?