The value of shares repurchased as a percentage of market cap. Buybacks reduce share count, increasing each remaining share's claim on earnings. Above 2% is meaningful. Most value-creating when done below intrinsic value.
Formula
Description
Measures the value of shares repurchased as a percentage of market capitalization. Share buybacks are an alternative to dividends for returning cash to shareholders. When done at attractive prices, buybacks increase per-share value for remaining shareholders.
Interpretation
Above 2% is meaningful. Buybacks are most value-creating when done at prices below intrinsic value. Companies that buy back shares at high valuations and issue them at low valuations (via options) destroy value. Watch the actual share count to verify buybacks reduce dilution.
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